Solutions to Possible Collapse of Social Security in America

Social Security

Social Security (SS) is an American program that aims to help “older Americans, workers who become disabled, and families in which a spouse or parent dies” (SSA.gov). It is the largest way that elderly people replace their incomes- the program replaces an average of 40% of a worker’s income upon retirement. This is not meant to be someone’s entire income, simply a supplement. The money for Social Security collectors comes from the taxes that are taken out of workers’ paychecks for this very reason. The following graphic from SSA.gov details the percent that each individual worker pays towards Social Security and Medicare, as well as how much an employer pays. Those who are self-employed pay twice as much as those who are not in both categories, because they do not have an employer to pay half of the taxes.

Higher lifetime earnings means that an individual will receive higher benefits when they collect Social Security, but lower income individuals do receive more benefits than they pay in. The percentage of income that an individual receives back from SS decreases as the annual income increases- meaning that a lower income individual will receive a higher percentage of their income in SS benefits than a higher income individual. Of course, this number is lower for the former recipient, as the higher income individuals will receive more money, even with a lower percentage. As the baby-boomer generation retires and the average life expectancy increases, there is concern that the current SS rate is not sustainable long term. While it won’t go bankrupt as long as people continue working and the tax system continues as established, there is a possibility that the current system will not be able to fully pay scheduled benefits by 2034 (Wall Street Journal).

There has been talk about the possibility of privatizing Social Security as a solution to this future problem. This would involve taking the payroll tax money that is currently taken out for SS benefits and investing it in private investment accounts- “workers would make contributions to their own privately managed retirement-savings accounts” (Wall Street Journal). Proponents of privatization argue that privatization, or a private-account system, would eliminate the dependence on the government’s ability to tax workers, as well as demographic trends.

On the other hand, opponents of privatization argue that this change would result in “increased retirement risks, severe cuts in Social Security benefits, and a multi-trillion dollar increase in the federal debt” (National Committee to Preserve Social Security & Medicaid). These would all be counterintuitive to the main aim of Social Security. Those against the privatization of SS point out that turning from an insurance plan to a savings plan eliminates all security and stability that the current system provides. Social Security pays identical monthly benefits according to an individual worker’s income. Retirement savings, on the other hand, can fluctuate greatly depending on the market’s current state and are more likely to be spent preemptively than Social Security. Opponents of privatizing SS also note that savings can be outlived, unlike Social Security benefits. In order to ensure than an individual does not outlive their savings, they would have to purchase private-insurance annuities at the time of their retirement. While this is possible, it would be costly for each account holder. Privatization also does not have the disability and survivor payments that Social Security does. Proponents for privatization argue that individuals can still buy life insurance or disability insurance, but they fail to realize the expenses of this that are normally covered by SS. Privatization would shift the cost for disabled workers and survivors from the government to each individual having to bear more of the burden.

The current Social Security program is stable in that each beneficiary receives a set amount of money based upon their earned wages, on a monthly basis. It is also only available upon retirement, with the exceptions of those who are disabled and survivors (eg. widows and children). Savings from privatization, alternatively, do not have the steady state of SS. They are able to be used at an individual’s discretion. While proponents for privatization may argue that this is a plus, conversely it allows individuals to preemptively spend their savings, leaving them without the month-to-month economic cushion that SS provides. Even if individuals are able to have more money at one time with privatization, they will not have the economic stability that the Social Security program provides. Monthly payments allow for people to plan and make purchases in a more economic fashion, without the risk of draining their entire savings account.

Privatization would benefit Wall Street brokers and fund managers while simultaneously costing individual workers more- namely in the commissions and fees necessary to administer small investment accounts. The administrative costs for Social Security are much lower than privatization. There would also be large transition costs for today’s workers if the switch to privatization were to be made. This cost has been estimated to be nearly $5 trillion over the first twenty years of transition, and it would fall on today’s younger generations who would need to pay the bulk of this cost (NCPSSM).

A better solution to the possible collapse of Social Security, estimated to occur around 2034 as previously mentioned, would be to expand the current program. Eliminating the tax cap that prevents the wealthy from paying the same percentage into Social Security would allow the immediate increase of benefits as well as an increase for future beneficiaries. It would also eliminate the threat of depleting the amount that is projected to happen in the next twenty years. The privatization of Social Security would only benefit the most wealthy workers and Wall Street brokers while failing to help low-income workers, disabled people, and survivors. Taking the government out of the equation in regards to retirement would only help some individuals, while harming the majority. Instead of privatizing the system, Social Security needs to be expanded and supported in order to benefit as many individuals as possible.