Should wealthier Americans forgo their Social Security benefits as a charitable gesture?

By Quentin Fottrell

A reader writes: ‘I will likely be in a position to decline my benefits’

Critics say such a move would destroy public support for the program and increase bureaucracy and administrative costs, while barely putting a dent in the funding crisis.

Should wealthier Americans contribute to Social Security merely as a charitable gesture?

One reader believes so. “I read your article debating whether people should delay claiming Social Security benefits. But you don’t have to claim the benefits at all, if you can afford to live without them. Some people simply don’t need Social Security income. I will likely be in a position to decline my benefits. It’s time to think about the common good.”

This question about Social Security comes up from time to time. Proponents like this reader argue that there is a moral and financial benefit to wealthy retirees voluntarily leaving their benefits unclaimed, thereby reducing the program’s future benefit obligations and, in theory, preserving more resources for those who depend on them most.

Critics say it would destroy public support for the program and increase bureaucracy and administrative costs, while barely putting a dent in the funding crisis. The challenge is less about good intentions than human nature. How do you encourage enough people to voluntarily forgo their benefits? What if they say “yes” and claim them anyway?

It’s an admirable impulse – and one rooted in a genuine sense of civic duty. It’s similar to asking high-earning taxpayers to voluntarily pay more than they owe. Some might. Most probably wouldn’t. Public programs are created for the collective good, precisely so they don’t have to rely on voluntary sacrifice or individual goodwill.

The reader raises a broader question. Social Security was created to protect older Americans from poverty, yet its success has meant that millions of affluent retirees now receive benefits they may not need. The mistake, perhaps, is to frame it as a problem (universality) with a solution (individual sacrifice), while ignoring demographic challenges.

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Long-term challenges

Means-testing Social Security would also require the federal government to assess retirees’ assets, creating a significant administrative burden and increasing costs. Such a system would be more complex, more expensive to administer and could ultimately undermine the broad public support that has sustained Social Security for nearly a century.

Social Security faces two long-term challenges: limited funding growth because its trust funds are invested in low-yield government securities, and a lack of individual investment choice since workers can’t invest their payroll taxes in the stock market. At its core, however, Social Security was never intended to function as a personal investment account.

It was designed as a form of social insurance. The program is supported by two trust funds. Old-Age and Survivors Insurance (OASI) pays retirement and survivor benefits to eligible workers and families based on work history. Social Security Disability Insurance (SSDI) provides benefits to disabled workers and their dependents.

Both programs are funded mainly through payroll taxes. While the SSDI is expected to remain solvent through 2099, people receiving disability benefits transition to the OASI fund when they reach full retirement age. Because OASI is projected to fall short of paying full benefits beginning in 2032, all future retirees could be affected unless changes are made.

Proposed solutions include eliminating the wage cap on contributions for higher-earning workers – effectively asking higher earners to contribute more into the system – raising the full retirement age from 67 to reflect longer life expectancy, and using a slower-growing index to calculate cost-of-living adjustments (COLA).

Wealthier Americans are more likely to experience longer life expectancy.

Stuart Butler, a health care analyst and senior fellow at the Brookings Institution, has said that rather than relying on individuals to leave their Social Security checks on the table, the program itself should operate as “true insurance.” In other words, rather than affluent retirees deciding to decline their benefits out of civic virtue, the system should be redesigned.

Writing on Real Clear Markets, Butler said, “Lower-income Americans have not seen much increase in life expectancy, while more affluent people have. Thus, raising the retirement age would cut total lifetime benefits proportionately more for those on the bottom rungs. Many end up falling below the poverty line and have to apply for means-tested assistance.”

If such a proposal was phased in, people would have time to adjust their planning, Butler said. This would better protect seniors from poverty, improve Social Security’s long-term finances and help eliminate the need for welfare programs like Supplemental Security Income. “Insurance is something that pays out only when things go wrong,” he wrote.

That’s why wealthy retirees continue to pay into Social Security rather than invest the money in the stock market, which would arguably be more lucrative (as well as being more risky). “If you don’t have a car crash, or your house doesn’t burn down, you don’t get your premiums back later in life. What you do get is protection and peace of mind,” Butler added.

The reader who suggested leaving Social Security benefits unclaimed, if you don’t need them, does raise an interesting question about personal responsibility. But Social Security was never designed to rely on individual largesse. It was created to spread risk among rich and poor alike, and provide some measure of economic security to everyone.

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An egalitarian system

The problem – and the beauty – of Social Security is that it was conceived as an egalitarian system. During the Great Depression, President Franklin D. Roosevelt proposed social insurance as a new approach to economic security. Instead of relying on welfare, workers would contribute through payroll taxes while employed and receive benefits in retirement.

This was intended as a practical, moderate solution to the economic hardships of the era. By the time the U.S. adopted Social Security in 1935, many other countries already had similar programs. Social insurance pools contributions to protect people against risks such as old age, disability, unemployment or death – with survivor benefits added in 1939.

Collective insurance was deemed more effective than individuals trying to save enough on their own. As the Great Depression undermined traditional sources of financial security – personal savings, work, family support and charity – Roosevelt made social insurance the bedrock of American retirement security.

Without congressional action, benefits could be reduced by roughly 22% – which could translate to thousands of dollars a year per recipient, depending on the size of their Social Security check – and lawmakers will likely have to choose among raising taxes, reducing benefits, increasing borrowing, or some combination of the above.

If Americans truly believe that wealthier retirees should receive less – or nothing at all – that decision would have to come through Congress. Such a challenge would reopen the longstanding debate over whether Social Security should remain universal social insurance or evolve into a more explicitly means-tested program.

For nearly a century, Social Security’s greatest strength has been its enduring public support.

Related: I am a 63-year-old semiretired physician. If I saved $2 million for retirement, should my Social Security become optional?

More columns from Quentin Fottrell:

‘I claimed Social Security at 62’: At 76, I’m working at Walmart. Why do I still owe payroll taxes?

If Social Security’s funding crisis is the elephant in the room, this is the mouse everyone has overlooked. You have been warned.

‘It’s heartbreaking’: My brother claimed Social Security at 70. He died from cancer after one payment. Why wait to claim?

You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com.

The Moneyist regrets he cannot reply to questions individually. By submitting your story to Dow Jones & Co., the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.

-Quentin Fottrell

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08-10-26 1601ET

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