The year is 1935, Franklin Delano Roosevelt is sitting down to add another item to the new deal to try to spark the recovering economy of United States. F.D.R is creating a way to spread the wealth of the nation over the entire population. He creates the Social Security program, which takes pay out of workers\' checks and pays it out to the elderly to create a means of income after retirement. This is to be paid to citizens for the rest of their lives. The system works great in theory. This system, however, will fail if certain conditions exist. For the current system to function correctly everyone must live to roughly the same age; the average life span can not change rapidly, or sporadically over a large period of time. In addition, the size of population must change in correlation with the average life span. If the population does not grow consistently, this will create
disturbances in the payments and financing of the Social Security program. If this problem is not corrected in the near future, the bulk of the United States will suffer the repercussions of a poorly financed government system.
As the end of World War II approaches, the United States is experiencing the largest birth rate in history (Knutson). These babies were even dubbed \"baby boomer\" because for the size of the new generation, and their rapid births. As the demographics of the citizens in the United States continue to change, we grow increasingly needy of a Social Security reform. When the Social Security program was kicked off in 1935, the average life span was 61 years (Bettelheim 870). That implies more than half the population was no expected to receive any payments for Social Security, which started at age 65. In the next few years, the average life span can be expected to approach 80. This means that within the next few years, every working citizen will receive an average of fifteen years of Social Security support. The growth trends of the population is also changing and creating a relatively large percentage of the population collecting Social Security, and a relatively small percentage of the population supporting them. Congress has been searching for ways to solve the Social Security problem, but there clearly is no easy way to change the Social Security program and keep everyone happy.
If this problem is not corrected within the next few years, people of all ages and demographic situations will see the effects in some way. People currently receiving Social Security compensation will generally notice a decrease in payments, especially as they continue to depend on a tapped system. Workers of all ages will also see the problems due to the fact that they will have more and more of their gross pay deducted to contribute to the support of the retired population. Future generations will also see the problems of the current Social Security program if nothing is done to change it. According to current projections, anyone born after 1956 is on pace to never see a Social Security check from a system with a positive balance unless the current system is changed. The current funds are projected to start running a deficit in 2011, and they are projected to run out as early as 2023 (\"Social Security\'s Problem\").
The current percentage of the elderly population relative to the rest of the population in the United States is growing. As shown in the graph above, from 1995 to 2040, the population of American Citizens over the age of 65 is expected to grow 112%. In relation to the rest of the population, the amount of people ages 20-64 is expected to grow 24% and the population of Americans under the age of 20 is only expected to grow a mere 5%.
This population is the biggest it has ever been and the population is still growing at a considerable rate (\"What\'s Wrong with Social Security\"). In contrast, the working population is getting smaller as more and more Americans are retiring early. Also, the birth rate in the United States is slowing; the population is still growing but it is growing at a slower rate. Basically, the system is growing worse in all directions, the retired population is growing faster than the working population, and birth rates confirm that the problem of changing age groups is only getting worse (\"What\'s Wrong with Social Security\"). When Social Security was created most people were never expected to receive payments and the system was very successful. According to national age trends in the year 2000, it is figured that on average everybody will receive fifteen years of compensation (Bettelheim 872).
Retired citizens are not the only people who will see the problems of the current Social Security system. Workers are having to pay more and more to support the growing retired population.
As shown in the previous graph, workers are also having to support a greater ratio of retirees than they have ever had to in the past. In 1970, the average retiree had an average of roughly 3.75 workers supporting him or her. It is projected that in 2070 this number will be down to an average of 1.8 workers for every beneficiary (Bettelheim 865). This will provide less income for the system, which is requiring more and more income due to the growing retired population.
Workers continue to have more and more of their gross pay deducted to help support the elderly. This will continue to happen if nothing is done to change the Social Security system. Workers also have to be aware that they are funding a system that they will quite possibly never see the returns on if the Social Security system is not corrected soon. The system is expected to run dry in the year 2023 and that means that workers will be buying into the Social Security system that they will never see the return checks from.
The Social Security problem does not limit itself to citizens involved now in some way. Younger generations will also have to deal with the current problem or if it gets fixed, there will probably be a different problem if it does not get fixed. Younger generations including members of the generation x era are on track not to receive any form of Social Security compensation unless there is something done to change the system. The younger and future generations will take the bulk of the tax hikes, suffer from cut benefits, and raised retirement ages if that becomes the course of action chosen by the Government to temporally solve the Social Security program. They will never know how the system had been run successfully in the past, and they will have to live with the bad deal they are getting from the Social Security program. One poll taken in 1994, by the youth advocacy group Third Millennium discovered the more of the respondents between the ages of 18 and 34 believe in UFO\'s than believe they will ever receive a social Security check (\"Social Security\'s Problem\").
There are many possible and probable solutions to the current Social Security problem. One way that the problem could be temporally solved is by changing the qualifications the receive compensation. The Social Security system would have to be more selective and eliminate at least one third of the beneficiaries to be successful for any significant length of time. Specific qualifications such as maximum working income to receive retirement compensation, and age at which compensation begins would be most sensible to change. Other qualifications such as income levels in which the worker made a certain total amount of money or is the recipient of a very sizeable inheritance and would not require Social Security compensation to live comfortably in retirement. Other such circumstances would include one-time income sources such as lottery winnings and other contests.
This would however create some tension and confusion in the work force. Workers would be tempted to devise a strategy to make the most money possible and still collect Social Security compensation. Workers would possibly not work as hard if they were close to the compensation cut off to ensure post-retirement income. This type of situation would also create problems dealing with the issue that all workers would be paying Social Security, and not all workers would be collecting Social Security. If changes such as these were to come into affect, many workers would be planning their careers on whether or not they would be collecting Social Security compensation after retirement. This would be a very drastic change to the Social Security program. If the Government made changes such as these, many workers would have to be told shortly before retirement that they would not be collecting compensation. Unless the problem was going to be left alone for several years, many workers about to retire would discover that they do not qualify for Social Security payments.
Another way that the Social Security problem could be solved is by changing the age at which all beneficiaries begin to receive retirement compensation payments. One of the biggest problems of the current Social Security program is the growing size of the retired population. One of the most balanced solutions to the problem would be to change the national retirement age. The retirement age is scheduled to change in the next several years but it will be mostly end up being too little too late. The American population is constantly gaining a longer life span. By the time the propositions to change the national retirement age time actually come into effect it will be close to one hundred years after the benchmark of sixty rive was set in 1935. If the plans to change the national retirement age do go into effect, the change will most likely only change the retirement from 65 to 70 by 2029. Since the national retirement age was set at 65 in 1935, the average life span for the American citizen has gained almost 17 years with the retirement age gaining only five (Bettelheim 866).
Changing the qualifications to receive Social Security payments, and or changing the national retirement age could solve the problems with Social Security. However, there is another way that would accomplish the same results without changing the qualifications to receive Social Security payments. Because the system needs to be changed so drastically so soon, it is hard to change it without causing an uproar among the people that become affected unexpectedly. Quite possibly, the most sensible way to change the system is to privatize the entire program. If Social Security became converted into personal accounts, it would simplify everything after it was converted. Workers would have the option to set the amount they wanted to save depending on their current financial situation. It could be financed similar to a 410k in the sense that a constant gross percentage is withdrawn from income and stored until that worker reached a certain age. At which point the worker could either take a lump sum or take monthly, quarterly, or annual payments depending on how that individual planned to invest his or her compensation savings. There would obviously have to be limits on the percentage of gross pay that would be deducted to make sure that every worker would have money saved for retirement.
Privatizing the Social Security system would also force the population to be more responsible with money. Workers would have to be able to calculate roughly how much savings they would need to accumulate to maintain their personal standard of living. The individual worker would be able to manage their own retirement accounts; they would have the options to invest privately, and use Social Security in correlation with cooperate investment opportunities such as stock options or 401k programs.
There is only one problem with privatizing Social Security. The set up cost is huge and is variously estimated to be somewhere between four and eleven trillion dollars (Friedman). This cost merely needs to be understood, it is more of a financial transaction more than a cost because the money never leaves the Social Security system. This cost is an estimate of the money that workers keep in their private accounts as new retirees are receiving checks that have come from current workers in the past. With new workers saving all Social Security, money there is no money to pay current beneficiaries. This cost however is a one-time cost, and could be paid off in the first few decades of the system. The funds could pay interest because they would be very similar to government bonds. This form of collecting gross pay from workers could collect interest to be shared by the government and the workers to help cover the cost of privatizing Social Security. This cumulative interest gained by the government could be put towards paying off the initial debt of Social Security privatizing costs and eventually start to chip away and the national debt. This interest paying account would most likely provide a better interest rate than most standard bank savings accounts making Social Security an investment tool and asset to the American work force.
When the Social Security program was started, it was a brilliant way to finance old age in America. Money would be withdrawn from current workers and paid out to senior citizens to help them finance retirement. However as the United States grows as a nation, the population is slowly but surely outgrowing the Social Security program. As more and more \"baby boomers\" retire and workers become fewer, there is a greater stress on the funds paying out Social Security than there has ever been in the past. The Social Security system obviously is in dire need of reform. There are many different ways the system could be altered to fit the population of the United States better. The system could be more selective when determining beneficiaries. This would create a lot of confusion in the work place as well as some strategic financial planning, such as workers trying to make as much as they can without losing compensation thus demotivating the work force to a certain degree. The Social Security system could also be somewhat relieved temporally by changing the national retirement age. This would also create some confusion regarding citizens planning to retire at age 65 or earlier and counting on Social Security beginning to mail checks at age 65. The system could also be relieved permanently by privatizing the whole program. This would allow the population of America to become more aware about financial planning and workers would have the option to adjust the percentage of gross income they wished to be withdrawn for their individual, personalized Social Security account. If congress did choose to privatize Social Security, workers could use it as an investment tool to plan for their own retirement, rather than the Government planning workers retirement. Workers could have their level of Social Security withdrawals set to meet their current personal economic needs.
The Social Security system is growing increasingly worse and without political pressure whatever is accomplished will neither be changed enough or soon enough. Without public knowledge and concern, congress will assume that people are not concerned or interested with the problem and it will not be a priority, or a debate topic for the next few upcoming elections. People need to understand what is happening to the money that they are paying to the Government, especially if they want to ever see it again in any way, shape, or form. We need to think about the generations to come and if they will have financial security and income after retirement. They should have the opportunity to enjoy the same government programs that we have been enjoying and wish to continue enjoying.