This month’s Facing Up theme is the eligibility of the baby-boom generation for Social Security benefits, which is just beginning. Fortuitously, your correspondent’s father is a baby boomer and graciously agreed to share his thoughts on the topic. He is no policy wonk, but a businessman and entrepreneur who is also well-informed on matters of public policy–in short, the sort of person whose opinion is important to help policy make the transition from universities and think tanks to the desk of the President.
No less importantly, no doubt other boomers, who’ve contributed to Social Security for years and expect soon to start receiving their checks, hold similar views. What the boomers think–how they perceive they’ve been treated by Social Security–will play a large role in any debate over Social Security in the decades ahead.
Heritage: When were you born?
Alan Grossman: July 5, 1946.
H: So you’ll be 62 this year—one of the first boomers eligible for early retirement Social Security benefits. Plan to take them?
AG: No, no current need. And if you actually need the money, what I’ve read is that you can do better by having your wife take it earlier and have the male take it later.
H: Do you expect Social Security to be a significant part of your retirement?
AG: No, it’s really not anything I think about.
H: In the past?
AG: Well, I think I thought it would be substantial. A safety net, at least.
H: What do your friends think about it?
AG: They think of it as an entitlement: They paid for it, they’re going to take it. I agree, to some extent. It’s your money, you’re getting it back. Or at least part of it back.
H: Do you expect that you will receive the Social Security benefits that you’ve been promised?
AG: Yes. Does that make me a fool? But I am concerned about Hillary Clinton becoming president, that she would propose a plan to retroactively means test people claiming benefits. Her election could cause a stampede of younger boomers registering for Social Security benefits, in the hope that, once they were getting benefits, they could not be cut off or face benefit cuts.
H: The money that you’ve contributed to Social Security, would you have rather done something else with it?
AG: Absolutely, something like a 401(k) or an IRA. The issue is control. Control is very important, because with the government in charge, there’s no way to know the rules, how they might change. I could have made a better return, but that really isn’t the issue. Anyway, for my age, the investment opportunities have been good for a very long time. Just from 1987, the Dow Jones is up multiples—it’s a lot.
H: But what about the safety net?
AG: There’s no trade off in my mind. The government’s ability to make a return is modest at best. You couldn’t possibly do worse. And investing doesn’t mean that there shouldn’t be a government role. It could be like a 401(k), where you have a minimum of, say, five investments, and you get to pick one or two or whatever. You have to invest a certain amount, at least.
H: I’m 27. Should I count on Social Security?
AG: Yes, but the degree is a different question. I believe anyone should understand it as a supplement, not a retirement. It’s a certainty that benefits will go down, unless the birthrate or social security tax rate increase markedly, and either is unlikely
H: You’ve had to pay for the generation before yours to receive Social Security benefits, and I’ll have to pay for all you boomers to get Social Security. It that fair?
AG: An interesting question. No, it’s not fair, because the number of people supporting retirees is declining at a time when the number of retirees is increasing. Is there a good fix? Probably not. The safety net idea is going to continue. That said, a significant portion of the money for that will have to come out of the payroll tax and the general treasury. There are only two places it can come from—and it’s really just one place. But it’s important to have a safety net, especially with how much we’re in world economy. Other countries provide it, and we need to be on at least an equal footing. Frankly, if you didn’t do it this way, you’d do it on a case-by-case basis, out on the street.
H: Would it be fair to cut boomer’s benefits?
AG: No, I don’t think it would be fair. I have no problem cutting back, if the program had that as its rule when you bought in, but it didn’t. Does one bad deed require another bad deed? Voluntarily cuts—declining to take the money—fine. Involuntary, no.
H: If you were 27, what would you hope to see happen with Social Security?
AG: That it become voluntary, part of a plan where you’re either in the Social Security system or in an investment plan or both: You get a safety net but with reduced benefits. But I don’t know if the average 27-year-old gives any thought to retirement in any case. Today, many people don’t expect to retire.
H: Any final thoughts?
AG: The control aspect is the problem. Neither side wants to give up control. The cost of individual control is zero—you just make your investments. The cost of government, I have no idea what it is, but it’s not zero. If I send a dollar to Washington, I’m not going to get all of it back. There’s overhead. In the end, this is welfare for the middle class.