Social Security

Social Security (SS), a US program, was created to help “older Americans”, disabled workers and families whose spouse or parent has died. It’s the most effective way for seniors to replace their incomes. On average, the program replaces 40% of a worker’s retirement income. This is not an income replacement program. Social Security collectors collect money from workers’ paychecks. The following graphic comes from SSA.gov and shows how much each worker has to pay towards Social Security/Medicare, as well the amount that an employer must pay. The self-employed pay twice what they would if they had an employer.

A person with a higher lifetime income will be able to collect Social Security more often. However, those with lower incomes receive more benefits than what they contribute. As the individual’s annual income rises, so does the percentage that they get back from SS. Therefore, a person earning less will receive more SS benefits than someone who earns more. This number will be lower for former recipients, since the income of the more wealthy individuals will result in higher amounts. The current SS rate may not be sustainable as the baby-boomer generation ages and life expectancy rises. It will not go bankrupt as long the people work and tax system are intact. But, the possibility exists that the system might not be fully able to pay its scheduled benefits by 2034. (Wall Street Journal). This future problem has been addressed by talk of privatizing Social Security. This would require workers to make contributions into their own private retirement-savings accounts. Privatization advocates argue that the private-account model would reduce the government’s dependency on workers to pay taxes and also address demographic trends.

Opponents to privatization argue, however, that this would cause “increased retiree risks, severe cuts to Social Security benefits, and an increase of the federal debt by multi-trillion dollars” (National Committee to Preserve Social Security/Medicaid). All these changes would be counterintuitive to Social Security’s main objective. Those who are against privatization argue that the system’s current form of insurance is no longer viable and will be replaced by a savings program. This would mean that there is no security or stability. Social security pays the same monthly benefits regardless of an individual’s income. However, retirement savings are subject to market fluctuations and more likely to be spent before Social Security. Opponents for privatizing SS say that savings can be exhausted, which is not the case for Social Security benefits. Private-insurance annuities would be required to make sure that an individual doesn’t outlive his savings. This is possible but would be expensive for each account holder. Privatization does however not offer the same survivor or disability payments as Social Security. Privateization advocates claim that people can still buy life and disability insurance but fail to understand the costs involved. SS is normally responsible for these expenses. Privatization would make it more affordable for survivors and disabled workers to pay more.

Social Security currently offers a stable program. Each beneficiary receives a fixed amount each month based upon their earnings. This money is not available until retirement, except for survivors or disabled. It is not available to widows or children. Alternatively, savings from privatization may not be in the same stable state as SS. They can be used at the individual’s choice. Although privatization advocates may claim that this is a benefit, it also allows people to spend their savings before they are due, which leaves them without the monthly economic cushion that SS offers. Individuals may have more money than they need, but the Social Security program will provide the stability and economic security that they need. People can plan and make more money by paying monthly, without having to drain all of their savings.

Wall Street brokers would see a rise in privatization while fund managers and Wall Street fund managers would see a decrease in their profits. Individual workers will also be affected by the increased costs of administration for small investment accounts, such as the commissions or fees. Social security has lower administrative costs than privatization. It would also have significant costs to transition workers to the privatization of Social Security. The cost of the transition to privatization would be close to $5 trillion in the first 20 years. It would fall on the younger generation, who would have to bear the majority of the cost (NCPSSM).

The expansion of the current program is a better way to avoid the collapse in Social Security. It was previously predicted that it would occur around 2034. The immediate increase in benefits and future beneficiaries would be possible if the tax cap was removed that prevents wealthy people from contributing the same amount to Social Security. It would eliminate the potential for the depletion of the estimated amount within the next twenty-years. The most powerful Wall Street brokers and Wall Street workers would benefit from the privatization and it would not be beneficial to low-income workers or survivors. The government being removed from the retirement equation would only benefit a few people, but it would be detrimental to the rest. Social Security should be supported and expanded instead of being privatized.

michaellang

Michael Lang is a 33-year-old professor and blogger who is passionate about writing. He has been blogging for over 7 years and has written for various online publications. Michael is also a seasoned professor who has taught at the college level for over a decade. He is currently a professor of English at a community college in the Midwest.