Social Security authority William Reichenstein has a way to fix the "broken" government retirement and disability benefits program, as he so frames it. Indeed, his way is 180 degrees from the reforms proposed by prominent politicians who mainly want to tax the wealthy and pay those funds mostly to lower income people, Reichenstein argues in an interview with ThinkAdvisor.
Forecasts hold that the Social Security trust fund will run dry in only 16 years. Hence, the system must be reformed — either by raising taxes or reducing benefits, Reichenstein says.
The Baylor University professor emeritus and head of research at Social Security Solutions focuses on the interaction between investments and taxes.
This past spring he released new research assessing Social Security reform proposals and put forth his own two-tier plan for how to restore health to the system. The research appeared in the May issue of the Journal of Retirement.
Focused on reducing Social Security's income-redistribution elements, Reichenstein contends that reform proposals by former Gov. Chris Christie of New Jersey; Rep. John Larson, D-Conn.; and Sen. Bernie Sanders of Vermont, a Democratic presidential candidate, are "unfair" to the wealthy.
In October, the chartered financial analyst is scheduled to speak at the Financial Planning Association's 2019 conference in Minneapolis. This coincides with publication of Reichenstein's new book, "Income Strategy," which explores his tax-efficient withdrawal strategies for retirement income.
Social Security Solutions — whose clients include BlackRock and Vanguard — turns Reichenstein's strategies into software tools designed to make optimal claiming decisions.
ThinkAdvisor recently interviewed Reichenstein, who was speaking by phone from Waco, Texas. The Social Security expert insists that reform must occur. More than once he quoted President Franklin Delano Roosevelt, who signed the Social Security Act into law in 1935:
"The Act does not offer anyone … an easy life — nor was it ever intended so to do," Roosevelt said.
Here are excerpts from our interview:
THINKADVISOR: In a December 2016 interview with me for ThinkAdvisor, you likened the Social Security trust fund's running out of money to a speeding train heading toward a mountain crash. What are the actual stakes?
BILL REICHENSTEIN: If we don't do anything, when the trust fund runs out of money, which is estimated to be in 2035, the Social Security Administration would have to use tax revenue coming in to pay current beneficiaries. The estimated deficit is about [$43 trillion; in 2018 it was $34 trillion] based on promised benefits. But the Social Security Administration doesn't have the authority to borrow money.
What are the chief options to reform the system in order to prevent a disaster?
One way is to raise taxes; another is to reduce benefits. But it would be very difficult to reduce benefits.
What do you think of the proposals that some politicians have put forward?
[Former] Gov. Chris Christie's plan calls for means-testing: [The scenario would be:] You and I make the same income for the same number of years. You save; I don't. His plan would take away money from higher income people who have saved and give it to others. That's not fair. It's an income redistribution plan. Social Security already has pretty strong income-redistribution features. The message of his plan is that if you save up income to supplement Social Security, you'll be penalized by having your benefits reduced. That ain't gonna work!
What about the other proposals?
Sen. Bernie Sanders and Rep. Peter DeFazio's [Social Security Expansion Act] is [also] going to take money from the wealthy and give it to lower-income people. Their plan is to tax unearned income — interest, dividends, capital gains — above a certain level and use the money to subsidize Social Security benefits. This is adding almost pure 100% income redistribution features. They want to tax earnings but grant no additional benefits for that.
There's also Rep. John Larson's Social Security 2100 Act. It proposes to increase benefits but to require payroll taxes for wages above $400,000.
