Your Social Security by Tom Margenau

Q. In a past column, you said that Social Security pays higher benefits to poor people and lower benefits to rich people. This is just another example of social equalization, which is what's wrong with our country today. If you work hard all your life, the government does its best to take money away from you and give it to those lazy folks who never worked and don't deserve it. How can you justify such a system?

A. Gosh, some people just have a difficult time accepting the fact that the word "social" in Social Security means something. But it does NOT mean that the government "pays higher benefits to poor people and lower benefits to rich people." I never wrote that in a past column.

What it means is that there are certain social goals that were built into the Social Security program from its inception almost 75 years ago. One of those goals is to help raise the standard of living for lower income people when they reach retirement. And that goal is reached through a retirement benefit formula that is skewed to give lower income people a higher rate of return than is paid to wealthier people.

That DOES NOT mean that poor people get higher monthly Social Security benefits. But it does mean that when comparing what they paid into the system (in Social Security taxes) to what they get out of the system (in Social Security benefits), they get a better deal than their higher income counterparts.

Everyone's Social Security benefit represents a percentage of their pre-retirement monthly income when averaged over most of their lifetime. Although the benefit formula is very complicated with many variable factors, broken down into its simplest terms, I could say that a poor person will get a "return rate" of about 70 percent whereas a wealthy person might get a "return rate" of about 30 percent. In other words, a poor person should get a Social Security retirement benefit that represents about 70 percent of his or her average income, while a rich person would receive a monthly benefit representing only 30 percent of his or her income.

And the reason rich people still get much higher monthly Social Security benefits than poor people is that 30 percent of a wealthy person's average income is a lot more money than 70 percent of a poor person's income.

By the way, those of us with average incomes (and that's probably most people reading this column) get a return rate of about 40 percent.

In other words, our Social Security benefits represent about 40 percent of our pre-retirement income.

Q. I am a 62-year-old woman who is potentially due widow's benefits from my husband's Social Security record. However, I can't collect any benefits because I'm still working full time. But I don't understand if these are my earnings, why do they prevent me from collecting my husband's Social Security? He worked and paid Social Security taxes for almost 50 years. Why should my earnings prevent me from collecting what my husband worked so hard to pay for?

A. The answer is going to get into another of the "social" aspects of Social Security. If Social Security worked like a normal pension or annuity system, then you probably would be due widow's benefits on your husband's Social Security record even though you're still working full time.

But as I alluded to in the first answer, Social Security is a form of social insurance. And one of the social goals of the original program was to replace income a person loses when he or she reaches old age.

The original Social Security planners thought that if an older man or woman is retired, then obviously that person has lost the major source of his or her income, and Social Security benefits were designed to help make up for that loss.

But then those original policy makers wondered what to do about folks who had reached retirement age but were still working. They figured that there wasn't as much of a need for society to replace their income via the payment of Social Security benefits.

So they devised an "earnings test" as the government calls it, or an "earnings penalty" as I prefer to name it. And that penalty clause in the law says that if you make over a certain amount of money each year (an amount that changes from year to year but is currently set at $14,160), you simply don't need Social Security as much as retired people do, so you lose most if not all of the benefits you'd normally be due.

Personally, I believe these earnings penalty rules have outlived their usefulness; I think they should be eliminated. But for the time being, you're not going to get any widow's benefits (or your own retirement benefits for that matter) because Social Security planners don't think society owes you any money until you retire or reach age 66 — when the earnings penalty no longer applies even under current law.

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