What Lies Ahead for Social Security?
Future for Social Security
Recent news headlines foretell about the looming predicaments and dilemmas facing Social Security. Although most would agree that current recipients are in no imminent danger of losing their benefits, or having their benefits reduced, what remains in the horizon is the future of this social welfare program, which has financially aided Americans for over 75 years. Pressing questions need to be answered. Is Social Security misunderstood, bordering abused? Will the privatization of accounts save Social Security?
A Historical Backdrop
The Stock Market crash in 1929 and the Great Depression that followed led to a virtual standstill of the US economy. This left an overwhelming number of workers unemployed and unable to find work. The Social Security Act, signed into law by President Franklin Roosevelt in 1935, formed a federal program for unemployment insurance, old-age pensions, aid to dependent children as well as offered federal grants to states for workers’ insurance plans and medical care. Disability insurance was added to the Social Security program in 1954, and Medicare was added in 1965.
A Pay-as-you-go System
The present program is a pay-as-you-go system in which the taxes paid by current workers are immediately sent to current retirees as benefit checks. Surplus money is put into a trust fund for use when taxes don’t cover benefits. That means the system can only function when the benefits paid to retirees are equal to or less than the Social Security taxes paid by workers. Social Security’s future financial troubles will arise due to fact that more and more Americans are living longer, and American families are choosing to have fewer children. This suggests the retiree portion of the U.S. population is increasing and the worker portion is decreasing. This is the real quandary facing Social Security at the moment.
Social Security is a pay-as-you-go program, and by law, no one has “earned” Social Security benefits or the benefits “owed” to them. In 1960 the U.S. Supreme Court ruled that the federal government is not obligated to pay Social Security benefits to anyone and the government is entitled to cut benefits at any time.
Privatization of Accounts
This is what makes the privatization of accounts attention-grabbing. Private accounts would give the workforce and not the federal government, partial control over the money they pay into Social Security. The hard truth is that Social Security benefits will have to be cut, taxes raised and the retirement age increased regardless of whether a private account scheme is put in place or not. However, the accounts do mean workers would know that some of their money will be there for them in the future and workers’ ability to earn investment income on the accounts will make the impending benefit cuts and tax increases a little easier to deal with.
American Retirement System
Finally, the Federal government needs to look at fixing the entire American retirement system. Many pension plans get swallowed up in corporate takeovers, lost in corporate bankruptcies, or fall victim to poor management in union or company accounts. There needs to be better governmental and private regulation of these accounts, so the money is available to the pensioners when they reach retirement age. The problems with Social Security are only part of the problem facing retirees in America’s future.