While researching potential topics for my issues brief, I decided that the controversy surrounding social security would be great for the assignment and following advocacy project. Although my issues brief would focus more on personal finances for retirement rather than persuading for one side of the political argument, this blog post will focus equally on all sides of the issue surrounding social security.
First, it is important to understand what social security is. Social security is a program that benefits retired, disabled, or deceased workers and potentially their families. This system relies on current workers paying for the benefits of those who are no longer working. Typically, a worker pays 6.2% of his or her earnings (up to a cap), and the employer will match that, contributing a total of 12.4% to social security. The money is then distributed as various social security benefits. According to the National Academy of Social Insurance, “About 158 million Americans pay Social Security taxes and 57 million collect monthly benefits in 2013. About one household in four receives income from Social Security.” Additionally, average social security benefits in January 2013 were as follows:
- $1,264 a month for retired workers
- $1,217 a month for widows or widowers over the age of 60
- $1,130 a month for disabled workers
- $1,735 a month for a disabled worker, spouse, and one or more young children
- $2,536 a month for a widowed mother and two children
The issue surrounding social security is that within our lifetime, social security is predicted to have benefit cutbacks or tax increases to maintain at its current level. The people that are most likely to feel the impact of this would be our age group. The reason that this would have a major impact is because programs like social security keep people out of poverty. According to the NASI, “Social Security plays an important role in keeping older Americans out of poverty. The poverty threshold was $11,011 for an aged individual and $13,878 for an aged couple in 2012. About one in 10 Americans age 65 and older is poor, by this measure. If they had to rely only on their income other than Social Security, nearly half would be poor. Overall, Social Security keeps 21 million Americans out of poverty, including nearly 14.5 million seniors and 1 million children.” However, by the time current young adults reach retirement age, social security will have changed significantly. It is predicted by the Office of the Chief Actuary of Social Security that at the current rate, trust fund assets would be exhausted and only 77% of the benefits currently will be received in 2033. There are a couple different approaches to handling this issue.
One way would be to increase taxes in order to pay for the same social security benefits. By increasing taxes on workers, those who benefit would be able to receive relatively the same amount of benefits. According to the Congressional Budget Office, starting in 2016, the program’s spending will consistently be greater than its revenues. If funding is not found elsewhere, that means this would increase the deficit. It could be balanced by raising taxes by 2-3% total, which means a 1.5% raise for workers, because it would be matched by employers. Ways to increase social security revenue include:
- Raising the taxable earnings cap, which is $113,700 in 2013
- Raising the Social Security tax rate in the future
- Earmarking other taxes for Social Security in the future
- Investing part of Social Security funds in equities
- Extending Social Security coverage to the 25 percent of state and local government employees not now covered
Another way would be to reduce benefits. Reducing benefits would decrease the size of the program, but it would also help to not increase the deficit more because this is such a costly program. According to the National Academy of Social Insurance, ways to reduce benefits include:
- Further raising the eligibility age for full retirement benefits
- Raising the eligibility age for early retirement benefits
- Lowering the cost-of-living adjustment
- Indexing benefits for new beneficiaries to keep pace only with price increases, instead of wage increases
- Gradually scaling back benefits
A completely different way would be to privatize social security, which would mean that each individual worker is responsible for his or her retirement funds. Funds would likely be used for long-term investments in order to accumulate for the future. Proponents of this argue that this way would allow workers to directly see the future benefits of the money they save. This also prevents social security surpluses to be spent on other programs, since each person saves in a private account. Additionally, proponents say that these types of investments would benefit the economy. Those who argue against privatizing social security believe that it would be a very costly system to begin, and the transition period would severely hurt those who rely currently on social security. Additionally, if anything were to fail with the stock market, many would lose their retirement funds.
Either way, social security is an important issue for people our age because we are likely the ones that will see major changes and have to make decisions about how to fund retirement. Personally, I know I want to help retire my parents, so whatever happens, I will at least be able to make sure my family is taken care of while I am working. Furthermore, it would probably be a smart and proactive decision to start saving for my own retirement immediately. In a macroeconomics class, we discussed that saving approximately 10 to 15% of earnings would be enough to pay for a person’s retirement. In a situation that could go either way, it would be best to be prepared. If it becomes privatized, having personal savings its essential, and if benefits decrease, you would have additional savings to live comfortably.
