Social Security Cuts Punish Middle Class

I’m seeing this already with many of my clients; many of them are choosing to relocate to states with a lower cost of living. In fact, we were seeing this phenomenon so often in my firm, RegentAtlantic, that we released a white paper on the topic in 2014. Cutting Social Security benefits for retirees, particularly those who have less time to plan for the decrease in income, might increase this exodus from high-cost states and increase the pressure on those states’ already struggling economies.

For most of my clients, the biggest areas of discretionary spending are gifts to charity, help with grandchildren’s college education, travel and assistance to children or other family members who are struggling to make ends meet, particularly with child care, medical and housing expenses. These areas of spending typically only stay in my clients’ budgets as long as their primary goal of maintaining their own retirement lifestyle needs has been achieved. Social Security benefits play a significant role in achieving that goal.

If taken away, the benefits would not only likely affect the lifestyle of the retirees themselves, but the effects could ripple in other areas of our economy—namely in costs of higher education for those who cannot afford steep tuition, in lower contributions to charities that help the most vulnerable members of our society and in less support for family members who need help meeting basic living costs. If income sources dry up, it is likely that the spending on these discretionary areas would dry up, too, putting increased pressure on our nation’s middle- and lower-income classes.

Means-Testing: Punishment For Savers
The final concern I have with Christie’s means-testing proposal is that it has relatively low income thresholds before benefits are reduced. That means punishing people who have been prudent spenders and savers their entire lives. These individuals might have accumulated large balances in their retirement plans because they lived well within their means, only to face larger required minimum distributions upon reaching age 70. If so, is it fair if their Social Security benefits are taken away? Someone who earns the same amount over his or her lifetime but spends it all instead will have no reduction in benefits because he or she has no minimum distributions to speak of. Does that make financial or ethical sense?

While I certainly agree that the Social Security issue needs to be addressed—and sooner rather than later to avoid more drastic measures—proposals needs to consider the impact on all retirees and not just the Warren Buffetts of the world. In addition, an equitable proposal should not penalize retirees who planned for their future.

Amanda Lott, a CFP licensee and wealth advisor with RegentAtlantic and co-chair of the firm’s financial planning committee, specializes in the analysis of Social Security benefit options.