Tuesday, May 01, 2007

Annual Earnings Test for early retirement -- incompatible with privatization


Earlier I discussed the Annual Earnings Test and the earnings limits for social security beneficiaries who retire “early”, before reaching “full retirement age” which is slowly increasing.

The more I think about it, the sillier the whole idea is. We used to think of social security as “insurance” and “old age welfare” in the FDR days, but in more recent history we have come to think of it as a forced annuity managed by the federal government. If so, why not let the beneficiary decide when he or she wants to start it, with the normal actuarial reduction in monthly benefit if started earlier (with a "perverse benefit" for not living as long, maybe benefiting males), without concern over other wages or the arcane issues of whether other income “counts” as “wages” or whether the person is “really retired” or just transferring income to other family members. At least, social security “privatization” and earnings limits are incompatible in principle.

The ideas over privatization of social security are supposed to be family and social policy neutral, a concept based on empowering individuals to control their own futures. Of course, there is a gap to be made up, because the earliest beneficiaries had never paid in. And there are other areas of social security (disability) that do act as a kind of social insurance. Family structure and spousal controversies in social policy can at least parallel those of private annuity contracts, which nearly always allow survivorship benefits.

Of course, enforcing the annual limit requires a bureaucracy and employs people. That can be a political problem, too. The same can be said about the IRS.

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