Social Security (Essay Sample)

Social Security
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Abstract
This term paper takes a look into Social Security. A brief summary on social security has been carried outlining what social security is. The history and development of social security over the years has also been put into consideration, noting key milestones in the evolution of social security. SWOT analysis was also carried out on social security to determine advantages, weaknesses, threats, and opportunities. The importance of social security to the economy and society is also analysed.Social Security
Social security is a program designed to ensure that individuals and their families are protected from losing earnings; as a result of disability, death or retirement. It was signed into law back in 1935, and it only covered retired workers until 1939, when the federal program expanded its benefits to incorporate spouses and their young children. By 1956, benefits for disabled workers were also included in social security (King et al., 2006).
Social security promotes the well-being of individuals who are not in a position to work anymore, enabling them to be independent for the remaining part of their life. In the US, half of the population aged 65 years and above look on social security as their primary source of income. It is quite clear that the social security has been of great significance in the alleviation of poverty in the community as a whole.
Over the years, social security has ensured the necessary protection of its subject matters. An essential characteristic in it is that the formula of benefit is progressive in nature. Progressivity ensures that incomes of low earners are not significantly contracted by them losing their earnings. Another aspect of it is that it is a guaranteed source of income. What is more, benefits are adjusted for inflation, based on a predetermined consumer price index.
Benefits from social security are a reflection of the current living standards. The fraction of earnings before retirement that is replaced by the social security is quite stable across generations. Consequently, social security is of great benefit to the working as all their dependents would benefit from it later on when they retire.
The coverage of social security spans far and wide. About 94% of workers, both self-employed and those in paid employment, are covered by the federal program. In general, one must have worked for ten years or so in order to receive retirement benefits. For one to qualify for disability benefits, or for the beneficial purposes for the family that survives, age at which death or disability occurred is put into consideration. Usually, it takes less than ten years.
In the US, 91% of workers between 21-64 years covered under the social security qualify to receive benefits in the event of disability. 97% of covered workers between 20-49 years qualify to receive insurance protection for their survivors in the event of death. As of February 2012, over 55 million people received disability insurance, old age and survivor's benefits on a monthly basis (Waid, 2012). Various social security trust funds are used to account for incomes and expenditures in the program. Through the OASI trust funds, retired workers and their beneficiaries are paid their benefits. The Disability Insurance Trust Fund pays the disabled and their beneficiaries on a monthly basis.
The primary source of finance for social security is payroll taxes imposed to workers on their earnings. For workers in paid employment, the burden on the tax is apportioned equally between the employee and the worker, at 6.2% for each of them. However, the self-employed bear the full burden of the payroll tax, which is at 12.4%. Another source of financing is interests charged on trust fund assets, on investing in long-term interest-bearing securities. Taxation of benefits from social security is also a source of income.
Early historical development of social security
In the US, Social Security Act was enacted in 1935. Passage of the Act ratified funding programs of grants for vocational rehabilitation programs. Additionally, new programs of grants were created to enable the States assist public programs for the blind. However, a program for supporting the income of the disabled was not included in the Act.
In 1950, there was a recommendation by the House Ways and Means Committee to incorporate support programs for disability income into the Act, as part of the State public assistance system and Social security social insurance program (King et al., 2006). The committee viewed the proposed Social security disability program to be primarily targeting older workers with chronic impairments making them unable to discharge their duties. Such workers would have no option but to leave the workforce early. Consequently, they would experience an income gap prior to maturity of their retirement benefits.
The addition of the Social Security insurance program came to light in 1956. The program was designed for those forced into early retirement due to disability and limited benefits to be only accrued by those who had attained the age of fifty. Provisions for vocational rehabilitation were also put into law.
However, quite a number of changes to the disability program over the years are clear. These changes are present in the economy, medicine, rehabilitative technology and attitudes towards disability. They have, however maintained the initial model, whereby the distinction between ability and inability to work is upheld. Significant changes include extending eligibility to workers who are yet to attain the age of 50 years. The previous long-continued and indefinite duration has also been substituted with a shorter expected minimum duration of 12 months. In the 70s, automatic increase in benefits was adopted to adjust for high inflation, thus increasing the amount of benefits. The Supplemental complexity of the tasks of the agency was also enacted and implemented during this period. While it gave responsibility for administering disability programs, it was to be applied in populations having different characteristics and needs.
In 1980, eligibility to receive benefits was tightened by measures requiring substantial pre-effectuation reviews (Puckett, 2010). In 1984, amendments were made, making the termination of eligibility by the agency hard. Integration of medical coverage with various income supporting programs increased the importance of social security for individuals. Eligibility for disability insurance benefits was extended in 1973 by the Medicare program.
Increased women participation in the labour market over the years has brought about change to disability programs. For a family with two earners, impact felt when one of the earner’s incomes is replaced by disability benefits is minimal. For around 52% of disabled worker families, income from social security benefits constitutes less than half of their total income. Improved rehabilitative knowledge, and medical advances, coupled with technology over the years has also impacted positively on social security.
Over time, change in the nature of the workforce and work has been observed, changing from physical exertion jobs in the 50s to more of a service economy. These changes make it hard measure to what degree medical impairments limit an individual's ability to engaging in various economic activities. As a result, the amount of allowance based on medical factors in the Disability Insurance Program has been on the decline.
SWOT Analysis
Strengths
Compared to private savings and voluntary employer pension systems, Social security is the strongest retirement plan that the US and is bound to be more efficient in the future.
Annuitization or price indexing is a major advantage accruing from social security. It prevents workers from pay-out risk which may surface, as a result of outliving their savings.
The administration of social security can be credited for efficient management over time immemorial. The pooling of funds takes advantage of economies of scale, which in turn, avoid slow returns and high fees - a feature present in individual accounts.
Funds for social security are only availed for benefits in the case of retirement or disabilities. Other plans may be leaky in nature, allowing employees to access funds before retirement, an attribute that does not support security on retirement income.
Compared to other federal programs, social security is the program that touches the most number of people. By the end of 2012, over 57 million natives in the US received payments from Social security, either for their disabilities, retirement or to survivors' (Desilver, 2013).
Social security has an alleviating effect on the economy. Workers can be allowed to retire when there is scarcity of jobs. Such retirement would stimulate consumer demand in times of recession.
Weakness
Back in 1983, the foundation of social security was undermined by the Congress. They did it by making reductions in social benefits. Despite the fact that cuts on benefit would result to long-term fiscal balance, the confidence of the public towards social security has been weakened (Eisenbrey, 2007).
In a bid of equalizing lifetime benefits for workers who retire at 70, benefits are adjusted gradually based on the retirement age. However, additional credits stop accruing after working for 35 years. As a result may encourage early retirement among workers.
Social security benefits are tied up to longevity. Longevity is tied to income. These may have an adverse effect on low-income earners and those with short life expectancies.
For every retirement plan incorporating rank and file workers, tax advantages are offered by policy makers. This incentive, however works best for employers who have high-income workforce (Ghilarducci, 2007)
Benefits of social security are termi...