Is Social Security an Entitlement?

There is no question that one of the most polarizing and sensitive words in our political landscape these days is the word "entitlement". But when it comes to social security, is it fair to call social security an entitlement?

I was recently giving a continuing education class to a group of CPA's when the topic of entitlements came up. In our group discussion one of the CPA's lashed out saying "...how can anyone call social security an entitlement when you pay into it your entire working life...it's not an entitlement but rather a promise to pay back in retirement what workers funded during their working years".

Although he makes a compelling argument, literally and legally speaking, social security is in fact an entitlement. For example, social security is Title II of the Social Security Act and Medicare is Title XVIII. So that's where the root of the word "title" comes from. Once you meet all the qualification requirements for social security then you are "eligible" for benefits. However, it's not until you actually file for and get approved for benefits that you become legally "entitled" to those benefits.

But popular culture and political rhetoric have given the term "entitlement" a bad name. It is often being connoted as some kind of government handout, like welfare and food stamps. These latter two programs are quite different than social security but, since all three are legally defined as "entitlement programs", social security also tends to bear the social stigma often afforded all entitlements programs.

It is correct to think that, although you did contribute into the social security system, you will likely end up getting more out of the system than you put it.  Could you have generated a larger benefit if you had invested your social security contributions on your own over your working years? Perhaps, but it's important to remember that social security was never set up to be an investment scheme. The system was originally set up to achieve a number of objectives, with a goal of balancing the benefits that individuals got out of the system along side what the country as a whole got out of the system.

For example, one of the major goals of "social" security was to raise the standard of living of lower income workers. To this day, social security uses a retirement benefit formula that is skewed to give lower income workers a higher rate of return (when comparing taxes "paid in" to benefits "received") than that received by higher income workers. By doing so, this has helped lift millions of seniors out of poverty. When FDR started the program in 1935, it was estimated that 80% of seniors in the U.S. lived below the poverty line. In large part because of social security that figure is less than 10% today.

There is no question that in many circles "entitlement program" has become a pejorative phrase, with the insinuation that people are getting something that they didn't earn or even deserve. The fact is, the use of the phrase "entitlement program" in government is simply a legal term for any government program guaranteeing certain benefits to a segment of the population who qualify for benefits under specific terms and conditions. In short, it has nothing to do with whether recipients are deserving, nor is it linked to a cost-benefit analysis on taxes paid versus benefits received. But in the highly politicized world that we live in, what words actually mean and the meaning given to words are often very different indeed.