Social_Security

Social Security is celebrating its 75th birthday this year. In those 75 years, millions of people have been able to keep food on the table and a roof over their heads. Franklin Delano Roosevelt signed the Social Security Act on August 14, 1935. A speech at the signing by Franklin Delano Roosevelt states,” This social security measure gives at least some protection to thirty millions of our citizens who will reap direct benefits through unemployment compensation, through old-age pensions and through increased services for the protection of children and the prevention of ill health.” The intent of Social Security was to “lessen the force of possible future depressions. It will act as a protection to future Administrations against the necessity of going deeply into debt to furnish relief to the needy” (Roosevelt, 2010). Since 1935, all employees and employers have been contributing to the Social Security fund. Although employers and employees will still be contributing to the fund, Social Security will not support all our needs when we retire. With the decline of workers, currently at 156 million, and the apparent increase of retirees collecting Social Security, Baby Boomers, those people born between 1946 and 1964, accounting for 78 million new retirees, “Social Security’s annual benefit payments will exceed annual revenues beginning in 2017, and it will be necessary to draw on trust fund reserves to pay full benefits. And, in 2041 the trust funds will be depleted. At that time, annual income will only be sufficient to pay about 74 percent of promised benefits” (Bovbjerg, 2005). Starting in 2017 and for the next 75 years, Social Security will face a $27 trillion shortfall (Social Security Reform Center, 2007). While the Baby Boomers contributed to the fund, the fund had recorded surplus years, but with government over spending and borrowing from the surplus of funds totaling $2.5 trillion (Ohlemacher, 2010) . The fund is like an empty black box full of government IOUs, according to President Bush. The monthly benefits will be reduced by 26% to help expand the length of time Social Security will be available by 2041. To further expand the reserves of the Social Security fund, the age in which anyone can apply for full benefits will be going from 65 to 67 for someone born after 1960. The penalty for early retirement will also be increased. If someone decides to retire at 62, he or she will only obtain 70% of their retirement benefit. It will not be until the full retirement age, 65 if born before 1960 and 67 if born after 1960, that anyone will receive 100% of their eligible benefits. This will not save it though, if more reforms are not done, the Social Security fund will be exhausted in 2085. The years following WWII until 1964 are considered the Baby Boom generation. This generation accounts for 78 million workers. These workers either are retiring or will be retiring in the near future. When the Baby Boomers were born, they accounted for a fertility rate of 3.0, every woman on average giving birth to three children. As they start to retire, the fertility rate will only be 2.0 (Aubuchon & Wheelock, 2007). This decline in the fertility rate implies fewer young persons will be entering the workforce to support the growing elderly population (Aubuchon & Wheelock, 2007). Tammy Baldwin states, “Over the next 25 years, the number of people age 65 or older are projected to increase 75% while the labor force increases only 8% “ (Baldwin, 2010). This decline in workers will have gone from a 16 – 1 ratio of workers to those receiving Social Security to 2.2 - 1 (Doescher & Turner, 1988). Generation X, the generation of people born between 1964 and 1980, believed the increase in the payroll taxes for Social Security in the years from 1980 to 1990, in which payroll taxes went from 5.08% to 6.2% (Social Security, 2010), were to place the burden of paying for the Baby Boomers Social Security Benefits squarely on the shoulders of Generation X. Although this time frame does coincide with the emergence of Generation X entering the workforce, the rate increases were necessary for two reasons; to keep pace with the inflation rate and to continue to make Social Security available for future generations of retirees after the impact of the Baby Boomer Generation has been felt. Although Generation X continues to argue about the longevity of Social Security, The Cato Institute has made studies to privatize Social Security. These studies suggest that privatizing Social Security will enable Social Security to keep its current rates of payments to retirees indefinitely (Cato Institute, 2010). By privatizing Social Security, the money for Social Security is entrusted to the individual to invest wisely. The Social Security fund finances the private accounts, initially. This initial startup cost could foreseeably increase the Social Security’s funding gap, pushing up the insolvency date from 2037 to 2030 (ProCon.org, 2010). Because Social Security taxes are weighted “to balance the system for all levels of wage earners, private accounts will create disproportionate returns since higher-wage will have more money to take bigger risks for higher yield investments than can low- and moderate-income workers” (ProCon.org, 2010). Retirement is a time to reflect on life’s accomplishments. The Social Security Administration suggests, to maintain a current lifestyle when in retirement, 80% to 90% of the final yearly wage is necessary. In 2010, the average retired worker received $1,164 from social security and the rate for a retired couple was $1,892 (Social Security, 2010). This would produce a yearly salary of $13,968 for individual and $22,704 for a couple. The national average for yearly wage in 2009 was $39,138 (Infoplease, 2009). Following the Social Security Administration’s suggestion, a person on average would need between $31,310 and $35,224 to maintain current lifestyle. The difference needed to sustain current lifestyle would need to come from either personal savings or another retirement plan. Social Security was never meant to be an all-inclusive retirement plan. Franklin Delano Roosevelt said this in his speech when he signed the Social security act into law in August 1935, “The social security measure gives at least some protection…” References Aubuchon, C. P., & Wheelock, D. C. (2007). Can Social Security Survive the Baby Boomers' Economic Synopses, 22(22), 1. Retrieved from http://research.stlouisfed.org/publications/es/07/eso722. Baldwin, T. (2010, august). Congresswomen Tammy Baldwin. Retrieved from http://tammybaldwin.house.gov/default.aspx Infoplease. (2009). per capita personal income by state. Retrieved from http://www.infoplease.com Bovbjerg, B. D. (2005,May). Social Security. Societal Changed Add Challanges to Program Protections, GAO-05(706t), 1-13. Cato Institute. (2010, August). Social Security. Retrieved from http://www.cato.org/social-security Doescher, T. A., & Turner, J. A. (1988). Social Security benefits and the Baby-Boom Generation. American Economic Review, 78(2 (May)), 76-80. Ohlemacher, S. (2010, March). Social Security set to start cashing in government IOUs. Spartanberg Herald-Journal, 1983626631(1), 1. ProCon.org. (2010, September). Social Security. Retrieved from http://socialsecurity.procon.org/ Roosevelt, F. D. (2010,August). Socia Security Online- History. Retrieved from http://www.ssa.gov/history/fdrstmts.html#signing Social Security Reform Center. (2007,September). Retrieved from http://www.socialsecurityreform.org/fastfacts/index.cfm Social Security. (2010, June). Social Security and Medicare Tax Rates. Retrieved from http://www.socialsecurity.gov