USA Social Security System - Essay Example

& No United s of America Social Security System (Process Essay) 17 January Introduction Retired people cannot realistically expect the social security system of the United States of America to provide for everything they need. This wrong notion still persists even today because people are inclined to assume that the government will give them the things they will need in the retirement phase of their lives. This is perhaps understandable as they had been contributing to the social security fund all their working lives and expect in return that the government will somehow ease their sunset years. They think they are entitled to their monetary contributions which they had earned by virtue of their retirement. However, the American government indicated clearly even from the start when the law was signed that social security is not intended to be the sole income source of retired people. What the government had in mind when creating social security was to provide an alternative for people who are down and out financially but never to support them entirely for the rest of their lives. The intention was to supplement whatever incomes the retired people may have. It is also unrealistic to expect the United States government to provide for the financial, medical and other basic needs of retirees when the economics of doing so dictates otherwise. Social security became a law as America’s response to the Great Depression in which millions of workers were thrown out of work. The economy was in a shambles and it was the government only which had the means to help these millions of poor workers who are able to work but cannot find work. Capitalism and free markets had collapsed but once the economy recovers, people are expected to find gainful employment again and set aside some money for their retirement by saving and investing part of their wages and salaries for retirement aims. Discussion Social security benefits are projected based on so many external factors just like any insurance program. Put simply, making projections even with the most powerful computer models cannot ensure any accurate outcomes. Additionally, many people have the wrong perceptions and concepts of the social security program. This safety-net law was to provide benefits for working people on their retirement, any disability, survivorship (for dependents) and death. Over the years, many other benefits were added such as those amendments for a “Supplemental Security Income” program for the aged, the blind and the disabled persons (although this is managed separately) even though they had not worked a single day before and did not contribute any social security taxes. The social security system of the United States of America works just as an insurance program would. This means it works on the assumption that everyone will be covered and all workers who are gainfully employed will contribute to the program to make it viable. Social security works on the idea that risk is spread over a big proportion of the working population. Additionally, the ideal should be more workers paying contributions to support the retired or elderly people who will now draw down on their contributions to support themselves. The social security fund comes from contributions made by people of working age. It means demographic shifts such as the graying of the population has a big impact on the future financial viability of the program. Actuarial calculations are just best estimates or assumptions about fertility, life expectancy, quality of health care and state of the economy; these factors determine the fund’s financial viability. The ideal set-up for social security would be workers supporting fellow retired workers. When it began in 1935, the contributions of 17 workers had paid for the benefits of one retiree. By 2035, the ratio is estimated to be only 2.1 workers per beneficiary. This situation clearly is financially not sustainable to continue giving benefits. The reduced ratio of contributing workers per beneficiary places a big burden on the social security fund as benefits will now outweigh the contributions made to it. Whether it is in the long term or the short term, the fund will be rapidly depleted if this bad ratio persists. Put simply, there are more cash outflows than inflows because of the changed demographics. The situation can be compared to the frequent complaint made by health insurance firms: the younger and healthier portion of the population does not want to procure health insurance. It is the older segments of the population who are more likely to obtain, procure or buy health insurance because they need the health policies the most because of old-age ailments. If the younger population segments will also buy health insurance, the insurance pool gets bigger and the insurance risks are lowered because these are shared by a wider group of people. It is the main reason why the new Health Care Act of 2010 signed by Pres. Barack Obama or the Patient Protection and Affordable Care Act (PPACA) has an individual mandate in it. Its real intent is to lower insurance premiums by expanding the so-called risk pool. The United States Congress has powers to amend the law (such as reducing benefits because of the federal and state deficits from the economic downturn and financial crisis). This simply means that retirement pensions and other benefits are not guaranteed. Some cuts because of the economic difficulties have already been implemented in some states such as the reduced Medicare benefits that do not reimburse for some types of surgeries. It is vital for people to realize that solely depending on social security checks is not the best way to go about the retirement phase in their lives. It is simply a bad idea based on the fact that other people will manage your finances. Retired people have to take charge of their lives through financial literacy and able to manage their finances by considering other needs in life such as having a vacation or even to continue working (on a part time basis) after they reached their retirement age. On a philosophical level, nothing beats as your own boss. Perhaps no other issue takes center stage in discussions of social security issues than the cost of health care today. It has become very expensive. The retired or senior people need medical care the most but this comes at a time when they no longer earn wages or have some other regular income sources. Lifestyle diseases such as heart ailments, hypertension and diabetes already start to manifest in addition to old age diseases like glaucoma, arthritis and osteoporosis that require a huge portion of their personal budget to be allocated to medical treatments. It is a classic squeeze of having to spend more but living on reduced or declining income. For those lucky or wise enough to have the foresight to prepare financially for this sunset period in life, money is not a problem. But a majority of citizens still depend on social security checks as their main money source with 63% of elderly beneficiaries relying on it for 50% or more of their incomes and another 32% of beneficiaries whose social security checks comprise 90% or more of their incomes. This is a precarious situation for these people. Conclusion It is clear from the above that there is disconnect between social security and what old people really need to live a decent life above the poverty line. People who manage their own funds attain financial freedom not enjoyed by other people who rely on social security. It is the best way forward to make retirement a truly enjoyable phase in life with no worries. The financial situation of the social security fund is bound to get worse as baby boomers who are estimated to be about 40 million will reach age 65 between the years 2010 and 2040. The term social security is really a misnomer because it gives a false sense of security for the majority of the retired populace and even to the working population right now. They expect to collect some benefits upon retirement which is not true because social security is only an entitlement program in which benefits and eligibility can be changed at anytime by the United States Congress. The key to solving the social security conundrum is to rely only on oneself by taking control of funds and making the right investment decisions. Read More