Social Security and "fairness"

In Playing God with Social Security Fairness, economist and Social Security guru Lawrence Kotlikoff responds to an article by economist Alice Munnell, criticizing Kotlikoff and others for promoting strategies for maximizing their Social Security benefits.

Munnell quotes the Obama Administration as saying that these strategies "allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits." Not mentioned, of course, is that the vast majority of people receiving Social Security benefits depend on them as their sole or major source of income, and are far from "upper-income." Any of them, not just those with high incomes, can follow the recommendations made by Kotlikoff and others to maximize what they will receive.

Kotlikoff notes that using the methods that are built into the system by Congress and the Social Security Administration is simply not "gaming the system." He states further,

"It's not our jobs as individual citizens to make the system more equitable by paying more taxes or taking fewer benefits unless we can persuade everyone else in our shoes to do the same thing, which we most certainly cannot."

Many decades ago, in Commissioner v. Newman, 159 F.2d 848 (1947), Judge Learned Hand said,

"Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant."

But that quote was about taxes, you may say. These authors are advising people about governmental benefits.

As Kotlikoff notes, there are 25 or more different systems within which citizens interact financially with their governments, and many have elements of both positive tax (money paid to the government) and negative tax (money received). And of course the Social Security system is comprised of a combination of taxes paid by those who work, and benefits received by those who become eligible.

The "fairness" issue is very similar to that involved in Medicaid planning by elder law attorneys. These lawyers advise clients about, and use, the techniques permitted under the Medicaid statute and rules to allow clients to become eligible for Medicaid coverage for nursing home care when that need arises. Some years ago, Congress responded to that issue by enacting an amazingly hamhanded and clearly unconstitutional statute that simply made it a crime for lawyers to advise their clients on how to make themselves eligible for Medicaid coverage.

The government can, and occasionally does, take action to modify the rules if it appears that there are unforeseen complications or problems. If the rules lead to an undesired result, Congress or the SSA is free to change the rules. But to criticize lawyers and other advisors for telling citizens what the rules are and how they can maximize the benefits that they receive is contrary to our sense of fairness.

Gradual loss of control in the elderly

A pair of articles were published recently about a subtle threat to the financial well-being of older clients.

At a website called Seeking Alpha - The Biggest Threat to Your Retirement Portfolio: Mild Dementia
In the New York Times - As Cognition Slips, Financial Skills Are Often the First to Go

The articles recommend that adult children, agents, or other protectors of elderly parents help with monitoring their accounts and transactions to look for early signs of mismanagement of funds, sending money to inappropriate recipients, and the like.

"People are able to make these disastrous investing decisions in the earliest stages of dementia because their loved ones, who assume dementia announces itself with forgetfulness, don't realize there are quite a few syndromes that develop into dementia whose first symptoms are not forgetfulness, but are instead loss of judgment, impulse control, and emotional balance."

Recommendations include:

• Sign authorization forms, well in advance, to allow your doctors to discuss your medical issues with your children or other selected agents.
• Include language in powers of attorney, trust agreements, and other substitution documents to permit a doctor to use "signs of poor judgment" or loss of emotional control to justify a declaration that you should not be handling your own finances.
• Share information about your portfolio and investment patterns with your agent, and give him or her access to be able to monitor activity within those accounts. 
• Place a credit freeze on the parent's accounts.
• Set up automated bill payments. 
• Ask that insurance companies and other regular payees send duplicate notices to your agent so that he or she can be notified of a missed premium payment or other similar lapse.
• Give early authorization to your attorneys and financial advisers to contact your agent if they see anything that gives cause for concern.

Each of these, of course, requires a careful balance between maintaining control and privacy and enabling a substitute decision-maker to effectively protect your interests.