Tonight’s final presidential debate between Hilary Clinton and Donald Trump has one segment about Social Security entitled “Entitlement or Debt.” The debate will be moderated by Chris Wallace of FOX News, who has been credited with coming up with the debate segment topics.
Of course, this segment will get off on the wrong foot since the segment title itself is prejudiced. The issue of entitlement reform is a catch phrase used by Republicans for reducing, eliminating or privatizing any form of state or federal subsidy to the poor, disabled, infirm, the blind, widows, veterans or those unable to work for any number of reasons.
In the debate tonight, Trump failed to answer the question about how he would strengthen or reduce Social Security. He sidestepped the complex question by saying he would repeal the Affordable Care Act (aka Obamacare) and cut taxes.
Alternately, Clinton said she would put more money into the Social Security trust fund, raise the dollar cap on Social Security contributions, so more high-wage earners would put more into the fund. She also said she would not cut benefits and would even increase benefits for women and minorities.
Clinton also pointed out that Trump’s claim that he would repeal the Affordable Care Act would increase the national debt by trillions of dollars since it would just transfer that burden back to Medicare. This was a much more complex and complete answer than what Trump was capable of delivering.
Privatization Still the Republican Goal
The issue of bundling this discussion made by FOX of entitlements with Social Security must have another purpose. The Republicans have long said that Social Security should be privatized and managed by investment firms that will invariably charge fees and expenses to manage these newly privatized assets. This should not be allowed to happen.
The reason is that large investment firms are built on a foundation of generating fees and revenues from their own investors at the highest allowable rates possible. And as we have seen in the case of Well Fargo, fees can be charged even when they are creating false accounts for their own customers without any internal supervision.
As noted in the book How 401(k) Fees Destroy Wealth and What Investors can Do to Protect Themselves, investors are totally unaware that there are fees, expenses and commissions that are hidden from them in the form of revenue sharing and 12b-1 fees. These fees apply to investors who buy mutual funds, as well as investments in 401(k) plans at work. As noted in the book, 12b-1 and revenue sharing cost investors $9.5 billion annually, while 401(k) participants pay about $164 million a day in fees to their investment managers and plan providers.
Watch Fees and Expenses in a Privatized System
But planning for retirement is a complex topic and undoubtedly will not be discussed in any detail at tonight’s debate. Still, investors and votes should note that the other essential elements of successful retirement planning involve savings, increasing contributions to their 401(k), and reducing as much as possible fees and expenses.
While many investors hope to increase their wealth through savings via home equity, this is a big risk. The real estate market is volatile and illiquid. Expecting a big payout on a home is no substitute for actively managing the only two important variables that people can control: reducing investment expenses and increasing individual savings.
The bet is that Republicans hope the public will buy into their false claim that Social Security is a “Ponzi Scheme” that has been stigmatized as party of the “entitlement system” (a code word for welfare and all that it implies) that promises large payouts and contributes to the national debt. This is an old, false claim. As noted by the web site, Social Security Works, this is not true and even President Ronald Reagan famously said, Social Security does not add anything to the national debt.
As it stands today, the maximum monthly Social Security benefit is $2,639 for workers retiring at full retirement in 2016, although higher benefits are possible for those who work or delay benefit receipt after reaching their full retirement age. This alone is hardly enough to maintain a middle class lifestyle anywhere in the U.S.
But for the Republicans, these benefits are too high. Trump’s vice presidential running mate Mike Pence has said that existing benefits are too high. This is in contrast to an August 2015 Gallup Poll that 57% of Americans prefer an increase in Social Security taxes rather than a cut in benefits to ensure long-term solvency of the program.
Similarly, a Pew poll found that among all voters, 71% say that, when thinking about the future of Social Security, benefits should not be reduced, while 26% say reductions need to be considered.
Among supporters of the presidential candidates, majorities ranging from 62% to 73% say Social Security benefits should not be reduced.
So what is going to happen tonight? Predictably, the Republican position has not change. The financial services and investment industries salivate over the opportunity to manage retirement assets for unsophisticated Americans who think they can invest successfully over the course of the working years (in some cases spanning 50 years) and beat the stock market averages. This is a naïve assumption that investment professionals long-steeped in the mantra of active management have been unable to do.