Term Paper: Social Security Since Its Inception

Pages: 5 (1455 words)  ·  Bibliography Sources: 1+  ·  Level: College Senior  ·  Topic: Economics  ·  Buy This Paper

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[. . .] Currently, financial analysts advise younger people that they can no longer depend on Social Security benefits for their retirement. Instead, they need to provide for at least half of their retirement income on their own.

Social Security Crisis

While estimates regarding the year vary, most experts agree that the Social Security funds will face a cash deficit in the foreseeable future. The large number of baby boomers who are expected to retire starting 2008 will serve to add large numbers of beneficiaries while removing a significant proportion of workers who currently pay FICA contributions. This problem will be worsened by the decrease in the number of new workers, since most baby boomers had smaller families the generation preceding them. As a result of these two factors, the amount of benefit checks will exceed the amount of FICA contributions to the Social Security trust fund (cited in Ungar).

The government has instituted several measured aimed at averting this impending crisis.

The Bush government's plan to ensure the continued solvency of the Social Security fund involves replacing much of the current system with privatized accounts. The rationale behind this plan is that young people would not have to shoulder the burden of paying for the increasing costs of Social Security, at the expense of saving for their own retirement (Leone).

Critics of privatization charge, however, that these tactics would adversely affect working families who need Social Security benefits now. Furthermore, previous experiences with retirement and privatization shows that privatized pensions often put workers at the risk of abuse and the mercy of unscrupulous corporations.

A privatized pension allows employers to manage the plan's assets, while promising to credit the worker's pensions with a corresponding interest rate. However, employers have often changed this rate, reducing the value of their employees' pensions. For example, when companies like IBM, AT&T and Citibank switched from traditional pensions to cash balance plan, the pensions paid to longtime employees were significantly reduced. Because of the potential for abuse, conversions to cash-balance plans were banned in 1999. The Bush plan for privatization, however, would allow employers to return to such practices, under the guise of augmenting the Social Security trust fund (Leone).

In addition, labor groups such as the AFL-CIO criticized the way this privatization plan particularly hurts workers of color. According to the group, privatization would raise the retirement age further, ensuring that many African-American men, for instance, would not be able to benefit as much due to their shorter life expectancies ("What's wrong with individual investment accounts?").

As an alternative to privatization, many financial experts recommend structural changes, where Social Security could be reformed while keeping individual accounts intact. These include increasing the number of required work history years from the current 35 to 38, taxing Social Security benefits the same way private pensions are taxed and instituting new formulas for computing a lower cost-of-living adjustments (Williamson).

These suggestions, however, stand to shift a greater burden of the Social Security problem to working families who are already economically vulnerable. For example, families who rely on Social Security benefits are usually not as affluent as those who have private pensions. For this reason, many low-income retirees are currently exempt from these taxes.

Other suggestions include increasing the minimum retirement age, increasing the penalties for early retirement and extending coverage to all state and local employees who are currently being covered by other pension plans.

All these structural changes stand to cause negative impacts and hardships on many working families who need disability, medical and other Social Security benefits. Unfortunately, this same group stands to be hardest hit as well when the Social Security fund begins to incur a deficit.

The daunting task of Social Security reform therefore lies in striking a balance between preserving the safety net of social insurance while minimizing the burdens currently faced by many working families across the United States.

Works Cited

Leone, Richard C. "The risky business of retirement." The American Prospect, 14(5): May 2003. ProQuest Database.

Schieber, S.J., and J.B. Shoven. The real deal: The history and future of social security. New Haven: Yale University Press, 1999.

Ungar, Alan B. "Viewpoint: Social Security: It has to be our issue!" Journal of Financial Planning, 16(2): February 2003. ProQuest Database.

What's Wrong with Individual Investment Accounts?" Political Issues. AFL-CIO Website. March… [END OF PREVIEW]

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https://www.essaytown.com/subjects/paper/social-security-since-inception/8892965.