Social Security was established in 1935 as an insurance program. Workers would make mandatory payments into a fund through the parole tax. Retirees would receive monthly checks from the fund when they retired. The fundamental goal of Social Security is to provide extensive and sufficient protection for the entire population against economic distress, connected with disability, death, and retirement of a household breadwinner, which might otherwise financially overwhelm the individual or their families.
Social Security provides you with a four-way protection, (1) retirement benefits, (2) survivors benefits, (3) disability benefits, and (4) Medicare health insurance. Social Security also ensures that: employees, employers and the self-employed are required to participate. What Each Person Contributes h 7. 65% of your paycheck goes to social security (your FICA tax) h For each contribution you make, your employer also contributes 7. 65% to social security.
Your contribution goes to the old-age and survivors insurance(OASI) trust fund, disability insurance, & Medicare hospital insurance h You can obtain full retirement benefits at the age of 65 Is Our Current Social Security System in Trouble? It wasn t until I began this research that I ever gave the thought of planning for my retirement more so than I am currently. I set my wife down Sunday to inform her of what we were going to have to do in order to retire at an early age, and planning on the social security money that we will have in paid for many years should not come into play.
In 1950 16 payroll taxpayers contributed enough into the program annually to support one retiree for the year. By 1994 3. 2 workers were supporting each retiree. By 2030 every two workers will have to pay in enough to support one retiree. (Information Provided by The Ethan Allen Institute). Under present law, and with the retirement of baby boomers born in the 1940s and 1950s, the system will start to run annual deficits in 2013. By 2035 all of the accumulated assets, plus all of the annual payroll tax revenues, will no longer be enough to pay the bills.
Social Security will be out of business. In Washington, the motto often seems to be Why do today what you can put off until tomorrow? When it comes to reforming Social Security, though, the president and Congress should realize that any delay puts the security of every American s retirement at risk. In 2012, just 15 years from now, Social Security will begin running a deficit, spending more on benefits than it brings in through taxes. In theory, the Social Security will begin tapping the Social Security Trust Fund to pay benefits until 2029, when the trust fund will be exhausted.
To make matters worse, it is a good thing that in today s time we are living longer, but as for as the social security system it is a bad thing for those who would consider delaying social reform. People who live longer will draw more social security checks and deplete the system faster. Growing life expectancy is increasing the retired population faster than expected. In 1940, a 65-year old man could expect to live another 12 years. Today he can expect to live another 15 years and by 2040 this will rise to 17 years.
The fertility rate is falling faster than expected. In 1960, a typical woman of child-bearing age gave birth to 3. 6 children. The rate has fallen to just two today and is expected to fall even lower by 2020. As a consequence of the two above trends, the elderly are expected to rise from 12 percent of the population to 20 percent by 2050. The number of retirees will rise from 34 million to 80 million. The combination of a smaller working-age population and a larger elderly population means that there will be fewer workers to support each retiree. above statistics found from the National Center For Policy Analysis) The impact of delaying reform will hit young workers hardest.
They could earn far higher retirement benefits if they could invest their social security taxes in private capital markets. Indeed, most young workers will actually receive a negative rate of return from social security-less money back in benefits than they pay in taxes. In contrast, private capital markets have produced average annual returns of nearly 10 percent over the past 60 years.
This brings us to the solution that I only see as the best alternative to replace the current Social Security System. Privatizing Social Security Much of the information I found on the privatization of the social security system was provided by Michael Tanner, who is director of health and welfare studies at the Cato Institute. The Cato Institute is a nonpartisan public policy research foundation that seeks to broaden the parameters of public policy debate to allow consideration of more options that are consistent with the traditional American principles of limited government, individual liberty, and peace.
The Cato Institute said the poll found that 60 percent of Americans under 65 do not think Social Security will be available when they retire and a majority reject traditional reforms such as higher taxes, lower benefits or raising the retirement age. There have been various reasons cited as to why Social Security should be privatized, such as the need for increased savings and a need for generational equity. The underlying issue behind the movement to privatize Social Security seems to deal with where the Federal Insurance Contribution Act (FICA) taxes will be held and who will control the investment of these taxes.
Involved in privatization, according to Michael Tanner, says the plan that the Cato Institute is working on entails that the worker will keep contributing the same amount of money but they would have the say so on where the contribution goes to. Tanner surveyed many Americans and they want personal control of their retirement savings. He said that support for the privatization was growing. I definitely am more aware of the state of the Social Security and the future that I am investing in.
I have always heard people say that when we get ready to draw Social Security that it will not be there, I now understand why, and frankly it makes me mad as hell that I m investing (if that s what you want to call it) $3000 per year in something that I will not get a return on. I am really glad that I am more knowledgeable of our Social Security system and the insecurity it gives me in counting on it to take care of me when I retire. One thing is for sure, I will definitely began planning my investments more wisely.
In closing I found the appropriate statement that Stephen Moore of the Cato Institute said, Every young person in America needs to be educated with both the sobering facts of Social Security and the advantages of a market-based solution. The legacy we should leave our children should be a financially secure privatized system, not a ticking time bomb. In 1935 the United States of America was in the throws of the worst economic depression our country had ever seen. The President at the time was Franklin Delano Roosevelt.
As part of his New Deal, Roosevelt instituted Social Security, which established an old-age pension system, to be administered by the federal government, and financed by taxes on both employers and employees. This system was to help the older citizens of the U. S. However, since its inception, Social Security has been turned into a retirement plan of sorts. Many retired and older citizens rely solely on Social Security benefits to live on. The program has been successful for the last 64 years, but in the near future Social Security might run out unless some drastic measures are taken to preserve it.
The program will be collecting less than it is paying out by the year 2012 and be insolvent by 2030. Something must be done. Social Security has been a safe and reliable source of income for the old for the last 64 years. Some 42 % of elderly citizens rely on social security as a large part of their income. Every month, millions of people over the age of 65 receive a check in the mail. The preceding fact is one of the main reasons that Social Security is in trouble. When Social Security was first instituted, the percent of the population that lived past 70 was much lower than it was today.
Recent discoveries in the medical field, and new attitudes towards eating and exercise have extended the life span of Americans much longer than in 1935. This means that there will be much more people receiving Social Security and they will be receiving it for a much longer time. The next problem with the system has to do with a change in demographics. There are 76 million baby boomers in the U. S. Once the baby boomers retire, there will be far more retirees drawing benefits than workers to support them.
Right now the ratio of workers to beneficiaries is 3. to 1. In the year 2030 it will be 2 to 1. In less that 2 decades, the taxes that the government will collect from the workers will not cover the benefits that they are paying out. This will cause the government to either stop Social Security, dip more into debt by continuing to pay, or institute a plan K In light of the problem that out country is faced with, there have been many suggestions of ways to fix Social Security. The proposals include ideas such as raising taxes, increasing the age to collect, cutting benefits, and privatization in stocks.
The probable first step to be taken by the government would be to increase the payroll tax. The government has proposed a 2 percent payroll tax increase, which would bring it to about 14. 5 percent. They have also thought about increasing the amount of money that can be taxed (currently $68,400). This would generate a vast amount of money, however it would raise the taxes of the middle class to an astronomical amount. Besides increasing the tax, the government could possibly raise the age that people are eligible to receive benefits.
It is proposed to raise the retirement age to 70 by 2029 and the early retirement age to 65 by 2017. After that, they would increase the age of retirement to correspond with the rise in life expectancy. Raising the age would serve a dual purpose, it would keep people working longer and it would decrease the amount of years that people would be collecting Social Security. By implementing this, the people would be supporting the fund longer by paying the payroll tax longer, and they would help to save money by not collecting any.
The labor unions strongly opposed to this suggestion because it would affect the amount they pay for pensions. It is also advantageous to them to have newer employees who have not worked up to the same wage rate as the senior employees have. The tax and age hike would clear the problem for the near future, but the government wants to see the system safe for the next 75 years. So they propose the idea privatization. Privatization would work as follows; workers would deposit 2% of their earnings in private accounts, choosing from a wide selection of diversified stocks and bonds that are authorized by the Federal Government.
The remaining 11 percent from taxes would stay in the usual trust fund. With the stock prices soaring and a bull market it seems the perfect time to invest in the stock market. But is it right for the government? The government has the opportunity to make a lot of money by investing in the stock market. The investments in the stock market would also not be subject to paying off the $9 billion in promised benefits as the fund does, which is very enticing. However, the disadvantages far outweigh the advantages.
The possible repercussions of the government owning a large scale of the capitalist market are disastrous. The first scenario was the recent subject of an article in the Wall Street Journal. An economist figured out that if the government to invest the current surplus of money in the stock market, and also invest the 2 percent proposed, in 25 years the government would own a majority of the corporations in America. The government should not be able to interfere with the market to that extent.
Also, at the moment, a government panel decides whether or not merging companies violates antitrust laws when they merge. If the government were to have a large stake in certain markets, what would stop them for creating a monopoly? Would government bias investment toward some industries and away from others? The government would certainly be libel for the same things that Microsoft is being charged with. These are just some of the conflicts of interest that the government would have if it entered the stock market.
The most significant reason as to why it is not a good idea to invest in the stock market is due to the uncertainty of the whole endeavor. What most people don t take into account is the high risk factor involved with investing money into the stock market. The yield is high because the risk is equally high. The possible rewards don t outweigh the possible disaster that could take place. Furthermore, the stock market is at an all time apex, and we are in a bull market. Many investment analysts are predicting a major correction of the market.
What would happen if the market crashed? Is there a back up plan? How would the government protect investors against large losses? These questions can t be answered, that is why it is not right for the government to invest in the market. To close, it seems to me that the government should stick with what it already does and knows how to do, that is, RAISE TAXES! I am in favor of a sharp tax increase for Social Security.
There is no risk involved in raising the tax, except for disapproval by the citizens of the U. S. I would also like to see the retirement age raised to 70 and the early retirement age raised to 65. This would make it lighter on the system as I mentioned above, providing more tax and fewer people to support. The measure I would implement would be to raise the cap on the amount of money that is taxable for Social Security. This would allow more tax money to be generated. These three things would set the system straight for the upcoming years. They are stable and sound ideas that have been proven to work. Privatization is not needed, we need to balance before we try to accumulate an abundance.