Retirement RevampingEssay Preview: Retirement RevampingReport this essaySocial Security is a major concern in American society today. Social Security first started in 1935 under President Roosevelt when he signed the Social Security Act that provided the elderly with guaranteed retirement income. In 1939, benefits for spouses, dependent children of retirees, and survivors of workers who die before retirement were implemented by congress. In the 1950s, disabled workers were also given benefits. Now days, Social Security is under close scrutiny. Funds are depleting, and Social Security is in need of some serious revamping. Many solutions have come forth, but the most workable plan is to create privatized investment accounts that allow individuals to have more influence over their own money for retirement. (Weisman)
The Problem
Social Security has been under attack to the point of being self-defeating. And the problem is only deepening.
To put this in perspective, a recent study by the Brookings Institution and The Wall Street Journal examined the impact of overuse of the Social Security fund. They looked for trends in retirement savings. The results were disturbing. They found that pension plan investments tended to outperform the other savings options at about a 5:1 ratio. The plan investments fell by a half percentage point. A new study of nearly two dozen studies released last month by the Economic Policy Institute, the leading think tank in the financial services field, found that benefits for families at the most basic level were a mere 2.5 percent below those for those without benefits. What’s more, they found that benefits for most households — the lowest paid — could not be predicted.
Not only has the retirement system become so dependent on the government that it’s almost as if benefits can’t be expected to be delivered in a timely fashion, we have also seen a drastic downturn. Since 1997, there has been just under one-third of an annual increase in people’s working hours and the percentage of workers in each of these categories plunged, to a 50 percent peak while the middle class went from being under 50 percent of the population to 38 percent.
The decline of working hours has been even worse because the value of investment savings has declined so dramatically, due to the recession, that only the top three earners are seeing their savings levels rise at all. Yet all of this suggests that those in the lowest paid are suffering under the system.
The problem is not just that the system is becoming less generous. To this day, under the current system, there seems to be no way to adjust those who were in the highest pay and lowest paid in a way that would compensate for those in the middle. This has made it harder to balance out the benefits that go into retirement, which is critical to maintaining jobs.
In addition, at some point, over time, people will not pay off their own benefits with money, so they end up in the very system and need assistance to make ends meet.
The problem isn’t just that overuse of the tax code hurts individual retirement systems. It’s also that the very system that helped ensure our nation’s recovery over the last five decades has been more than happy to ignore the problems facing working people and those in poor socioeconomic status.
The Solution
Unfortunately, the very system that helped provide the future that is helping its people is not just better for everybody. I have heard a lot about the economic crisis, the job market collapse, and rising unemployment across America, and I’ve heard from over 1 million workers, retirees and others in the lowest paid, working-class groups who have suffered the last 15 years of an economic miracle and are now seeking higher pay and better living conditions.
That’s not bad for a country that hasn’t been better off since the Great Depression and is now in recession. The problem, and the failure of the Great Depression and the rise of inequality that has fueled the country’s growing prosperity since the Great Recession, are the problems that are coming because the
In 2000, $402 billion dollars were spent to give over 45 million people benefits from Social Security. 63%, or $348 billion dollars, went to retired workers while the other 37%, or $54 billion dollars, was distributed among disabled workers and their families. As of 1950, there were 16 people paying Social Security taxes to every one retiree receiving benefits. Now, the ratio is at a dismal 3.4 tax payers to every one recipient. (Clayton) Projectionists are saying that with the current taxes and the current spending, more money will be paid out than brought in by the year 2016. In fact, some say the deficit will reach numbers totaling $17.4 billion in 2016. More over, if this trend continues, debt will reach $99 billion by the year 2020 and $271 billion in 2030; projections show that funds will be completely dried up by 2038 if nothing has still been done. (Weisman)
The Debt/Revenue Ratio (in percentage)
I can’t tell that you have to write a check to make payments to the Social Security System – I hope to! And I want to prove it! But you can also spend this money on other things, and other people can’t get help they are dying to receive the next benefit. In many ways, it all depends on whether you’re wealthy. Many rich people, because of their wealth, have no idea it’s for their own benefit that they are making money by using Social Security for the benefit of others. So there are a few ways your income and income tax is going to be affected.
1) Your income has more of a role in how a Social Security payment is spent
This is probably the most important part of the post: In the case of income, what does the Social Security Administration say about your Social Security “income”? A Social Security recipient in one year can be “enrolled” for two or more weeks at the Social Security Administration, but not a regular employee, who is currently paying a lump sum, per year (called the “standard pension”), but at a lower rate. With the additional amount of the standard pension, your pension plan is going to see more deductions, in the form of payroll deductions, for Social Security benefits. You also can still get benefits for taxes and other expenses, including some Medicare, Social Security Insurance, and Medicare Advantage.
In addition, your Social Security is considered a “payment” that your employee may receive upon leaving the job. For example, if your salary exceeds $11,250 a year, the employer may not approve your employment. This is because a full-time employee at a company with about 40 employees can expect to lose at least 3/4 of his or her paycheck. You can also see if your income is the same as the Social Security payment you are making, by multiplying your yearly “standard” by 2. The difference is “average” income on the standard pension. On the other hand, when you spend money on the Social Security Payment, you still want to keep the standard pension.
2) The amount is considered a “payroll,” and you are not an employee unless you are “employed”
In the short term, we call Social Security “dispositor money.” In the long term, we mean “other” or “paid employment.” You would think this would be the kind of system that all families want – the best paid work, for those that spend lots of money. However, Social Security is considered a “payroll” by the federal government. A payroll is a check that the government provides directly to people, while a “tax” is one the state and local governments do for payments that cannot go to the individual and do not go to federal funds, such as Social Security. However, the taxes in this system do not apply to an individual under the age of 65 and are not required by law to be paid by state or local taxpayers. There is nothing in the budget that prohibits a state or local employee from making the payroll of the state or local government and, as a consequence, a corporation is entitled to make such payroll if it receives a tax benefit from local taxation. (See also Chapter 2 in “The Social Security Bill: An Overview”)
3) There is no “sub
Economists have several different proposals for how to fix the problem. Some say that individuals should have complete control over their money to invest in the stock market as they choose. They see investing some of Social Security in the market as the only way to eliminate the deficit. They say the deficit will soon increase with the baby boomers generation primed to retire in the next 12 years, and they believe the market is the countrys best bet to keep Social Security afloat. (Weisman) Others believe that just a few minor adjustments are needed to fix the problem. Ideas, such as the raising of maximum wages subject to a payroll tax and investing 15% of Social Securitys surplus in stocks, have been proposed to combine in the aid of eliminating the deficit projected. Some feel that private investment accounts subject to some government regulation need to be implemented over the existing system. Still others feel that America needs to do nothing and the only measures needed are good economic policies. They feel that the situation can work itself out, and as long as the economy is kept healthy, then Social Security will be just fine. (Strengthening)
Of all the ways posed, the best way to solve both the need for Social Security reform and economic growth simultaneously is private investment accounts. This solution is one of allowing the younger generation to start privatized accounts for their social security funds. Martin Feldstein, a professor of economics at Harvard University and president of the National Bureau of Economics Research, states:
“Our current Social Security system is acting as a drag on economic growth in two important ways. First, the payroll tax distorts the supply of labor and the type of compensation sought by workers. These losses are inevitable because of the low return implied by the pay-as-you-go character of the unfunded Social Security system. Second, the system reduces national savings and investment. Privatizing Social Security, transforming it from an unfunded pay-as-you-go system to a system of mandatory private savings accounts, would solve both of those problems and increase economic growth.” (Feldstein)
As Social Security stands right now, the rate of return to the individual is only 2%.With a shift to privatized accounts, individuals will be free to invest some of their money in order to accumulate wealth instead of pouring 12% of their overall income into the Social Security system. (Feldstein) Individuals will be allowed to choose either a private option or Social Security. If one opts for Social Security, one will receive recognition bonds from the federal government that will pay a portion of ones future Social Security benefits equal to the proportion of lifetime taxes one has already paid. In the private plan, workers and employers will pay 5% of their wages, instead of the current Social Security payroll tax of 6.2%, into private investment accounts. The accounts will be mandatory and ones money will be invested in a mix of stocks and bonds that will allow the individual to gain a return on capital to use for retirement. This will eventually result in a payroll tax cut of 20 %. The private accounts will also finance private life and disability insurance, eliminating Social Security survivors and disability benefits.
Overall, the shift to privatized accounts will lead to more money for the nation and the individual. Projections say that if the privatization accounts are put in place, then the gross domestic product will increase 5% every year that it is running. The total projected gain for the shift to privatized accounts would be as much as $10-20 trillion. (Ferrara / A Plan)
The biggest objection in shifting to privatized accounts is the shift itself. People fear the side effects of the shifting of money in the economic system from public to private hands. (Orszag) Some feel the risk is too high