One lurking issue today in the United States that tends to keep being overlooked is Social Security. Even with the upcoming presidential election, none of the candidates seem to have Social Security as one of their main focuses in office if elected. One of the primary reasons the issue keeps being disregarded is that there is no perfect solution to the issue. However, the issue can not keep being put off, because Social Security is essential to many Americans’ retirement plans. Nearly one-third of retirees receive almost all of their retirement income from the system, and nearly two-thirds receive more than half of their retirement income from Social Security. So we can not simply just get rid of the system, or our retirees will end up in poverty, just as they were before Social Security was enacted in 1935.
Social Security began during the Great Depression, when about half of senior citizens were living below the poverty line. The stock market crash of 1929 and many bank failures preceding the Depression destroyed Americans’ retirement savings. Social Security was enacted as part of FDR’s New Deal and meant to limit the dangers of modern America, including old age, unemployment, and the burdens of widows and fatherless children. Today, many Americans put considerable amounts of their retirement money in the stock market, hoping for growth. However, with the instability of the stock market, people tend to panic when there are sudden plunges, such as those of these past few weeks. With your life savings in a state of instability, it is natural to want to sell your stock; but when you sell your stock at a low point in the market while buying at high points, you tend to lose money. Dean Baker, a writer for the Los Angeles Times, explains this concept and the importance of keeping Social Security for our protection in the long run in his article “Don’t Mess up Social Security.” Summed up quickly, we need to keep some form of Social Security alive.
So why is Social Security in such a bad state? There are a few different reasons. One, people are living longer. Two, baby boomers are now retiring. And three, there are structural inefficiencies within Social Security. In 1940 (around the time Social Security was created), the life expectancy of a 65-year-old was around 14 additional years; today, it is about 20. This issue is pretty self-explanatory; with people living longer, workers have to pay for beneficiaries longer. This, combined with the baby boomers now retiring, results in more people receiving benefits for a longer period of time and fewer workers to pay for them. This issue will not be getting any better anytime soon, because it is estimated that by 2033, the number of Americans over 65 will increase from 46.6 million today to over 77. Also, it is estimated there are currently 2.8 workers for each Social Security beneficiary, and by 2033, there will be 2.1 workers for each beneficiary. One can find more information like this on the official Social Security website. Lastly, there are basic inefficiencies involved with Social Security. The main inefficiency with the current system is that when Americans turns 65, they receive checks every month for the rest of their lives; therefore, there is less incentive for them to keep working. This creates deadweight loss in the economy and also a loss of revenue for the Social Security funds. With all of the issues listed above, at the current rate, with nothing being adjusted, the Old-Age, Survivors, and Disability Trust Fund reserves will be depleted by 2033.
All of these problems lead up to a lack of funds for Social Security to be able to survive. But how can the government get the funds needed for Social Security? The one obvious way is to raise taxes. However, with taxes already so high, would an American worker want to sacrifice more of their paycheck now to possibly see some of it back when he is retired?
One solution is to raise the retirement age. With all the health advances the past century, it makes sense that people should be able to work longer. This solution would eliminate a substantial portion of deadweight loss caused by early retirement. With people working longer, there will be more funds raised through taxes and also less funds needed, because less people qualify for the benefits. Another solution would be to eliminate benefits to people who made over a certain amount of money in their lifetime. As of now, even people like Bill Gates will be receiving Social Security checks when they retire. Why should people who made millions of dollars be eligible for Social Security? Social Security should be a program helping people who are struggling to be able to retire, not to make the wealthy wealthier. Another simple solution to the funding issue with Social Security would be to eliminate the maximum tax on benefits received from Social Security. This would also incentivize more people to continue to work instead of retiring too early, which, in turn, would create more funds for Social Security.
Social Security is essential for the future retiring generations in America. Without needed changes in legislation, funds will begin to deplete, and future generations will have nothing to be able to retire on. There is a major funding problem with Social Security, and if it keeps being passed down to the next generation, there will be a large-scale retirement crisis in America, and the country will be right where it was before Social Security was enacted, with 50% of the elderly living in poverty.
If you enjoyed reading this article, you may find these interesting as well:
Jamie Hopkins at Forbes: Social security could be in worse shape than we thought.
National Academy of Social Insurance: Strengthening Social Security: What Do Americans Want
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