social security dillemma (Research Paper Sample)

Title page Table of ContentsI.Introduction PAGEREF _Toc40831243 \h 1II.Summary1III.Social Security Dilemma2Flaws in the Social Security program2Solutions to the Social Security crisis3IV.Conclusion4 * Introduction The Social Security program, under the management of the Social Security Administration (SSA), is an insurance program meant for old-age, Survivors, and Disability. Naturally, workers fund the program through payroll withholding at workplaces. Funds collected from workers are channeled into the OASI Trust Fund and DI Trust Fund which are the main Social Security Trust Funds in this program. The OASI Trust Fund is specifically for retirees while the DI trust fund caters to disability beneficiaries (Kagan, 1). In addition to the large number of retirees that benefit from the Social Security program, their children, survivors, and disabled workers are also regarded as beneficiaries. Recently, this program is under a surging crisis with projections indicating a future scarcity of funds to run the program. This crisis is attributed to the rapid increase in the number of beneficiaries in the program. An increase in life expectancy and the retirement of baby boomers have highly contributed to the fall in worker to beneficiary ratio. This paper seeks to identify the flaws in the Social Security program and generate possible solutions to the social security crisis. * Summary Originally, the Social Security Act was enacted by President Franklin D. Roosevelt in 1935 to support aged Americans through continuous pay upon retirement. Over the years, this program has gone through several amendments, extending its benefits to disabled workers, minor children, retired workers’ spouses, and the families of a deceased spouse or parent. The most recent amendment to the program resulted in the inclusion of health coverage. Certainly, the Social Security program funds are collected through a dedicated payroll tax as directed by the Federal Insurance Contributions Act (FICA). According to 2020 tax collection rates, employers and employees are both deducted 6.2% of their salaries up to a taxable maximum of $137,700 to fund the social security program (Folger, 2). Excess funds that are not distributed as benefits are used to acquire government bonds included in the Social Security Trust Fund. Within the next few years, the trend shows that the Social Security program is expected to distribute more funds to beneficiaries than it collects from the current dedicated payroll tax program for workers. This is a major crisis that is unresolved, which would result in the collapse of the program. Markedly, more than a decade ago, former U.S. president George W. Bush tried to solve fix the Social Security system by proposing the privatization of the program. The idea suggested a reform in the Social security system, where every employee in the nation would be entitled to a voluntary private account. Perhaps, this reform would eliminate the demographic risks in the current system. Private accounts in the program would eliminate the generation transfer model present in the current system and associated uncertainties. Contrariwise, this idea derails from the aspects of Social Security regarding fixed benefits that are independent of the stock market. * Social Security Dilemma Flaws in the Social Security program Notably, the social security program is in a state of crisis due to the delayed reforms of the program model. As a result, the system’s finances are declining, with the disability program almost collapsing. These flaws in the Social Security program include a fall in the worker-to-beneficiary ratio, surging life expectancy, and devaluation of interest rates. To begin with, the architects of this program seem to have omitted the possibility of a rapid increase in birth rates. As a result, one of the main problems facing the program is the shift in demographics. Research indicates that there has been a significant increase in the rate of retirement of baby boomers. For instance, in 2018, about 16% of the population recorded the age of 65 and above (Williams, 2). This implies that there is a rapid increase in the number of qualified beneficiaries, which has lowered the worker-beneficiary ratio. Since there is a deficiency in the number of new workers to replace the retired, the payroll tax revenue is expected to be insufficient for the surged number of beneficiaries. Second, the program design did not consider the possibility of an increase in life expectancy. Studies show a rise in life expectancy from 70 years to 78.8 years within the past 50 years. Better health care, access to advanced pharmaceuticals, and health education have contributed to this rise in life expectancy. Consequently, the Social Security program has been forced to fund more beneficiaries for a longer period. Finally, the program’s investment in special issue bonds is recently facing low-income rates due to the devaluation of interest rates. These low yields may not top the inflation rate in the future. Therefore, progressive low-interest rates imposed by the Federal Reserve could result in the depletion of the Social Security spare funds. Solutions to the Social Security crisis Markedly, numerous program implementation strategists have strongly projected the collapse of the Social Security program within the next two decades if appropriate reforms are not made to the program model. Thus, solutions to the flaws in the program are necessary. To begin with, raising the retirement age for current and future workers can alleviate the declining worker-to-beneficiary ratio. The last legal amendment of the full retirement age was done in 1983 and an increase in 2003 to boost the retirement age from 65 to 67 years. Raising the retirement age further could provide workers with more working periods, encourage them to save more, and ultimately, give them a chance to contribute further to the program. This could help raise the worker-to-beneficiary ratio to match the already retiring baby boomers. However, this solution could inconvenience the current labor force. Implementation of this idea implies that; the current workers will enjoy fewer retirement benefits than the current retirees. Similarly, raising the retirement age could decrease benefits for low-income retirees. From a long-term perspective, however, this option can be considered effective in fixing the program’s demographic shift problem. Besides, raising the...