Depletion of Social Security for the Retired - Essay Example

Depletion of Social Security for the Retired Introduction Social Security is considered to be of utmost importance in regards to saving the elderly population from the condition of being converted into destitute. A statistic reveals that social security acts as the income provider to one-fifth of the retirement population. In regards to the American context, it serves as the income provider for around 66 percent of the retired population. In the light of other retirement benefits, encountering a problem it sounds irresponsible in weakening up the social security system. The social security problems centering on the elderly population start with the illusion created by the medical insurance system. It is observed that the policies like Medicare and Medicaid fail to deliver sustained assistance in regards to the inflationary drives in healthcare. The government of the state looks after these medical financing policies for the elderly and the poor people. In a similar manner, the pension for the elderly people is in utter doldrums. The nature of the pension crisis is observed to be much more complex in regards to the Medical benefits. Companies go on retrenching old people giving them to retire and save labor cost. The pension schemes of the corporate sector have become very misleading making the retirees and old people suffer for the same. (Eyal & Sherman, 3) The paper researches on the nature and magnitude of the stated problems and endeavors to find a probable solution to such. Social Security The conglomerate terminology given to a host of programs targeting incidents like retirement, disability, dependency and survival needs in a person’s life is regarded as Social Security programs. The scope of the social security programs center on providing the households of working families needed financial assistance at times when they become unable to earn further owing to the above reasons. In the initial stage, the social security programs were designed to cater to the needs of the elderly population of America. In regards to the depletion in the job availability of the elderly population and the division of the family owing to the job, transfers the social security schemes targeted providing financial assistance to the elderly population. However, the current scenario, which is a combination of inflationary living standards and stagnation of benefits coupled with rise in penalty to the elder working force ears up the benefits accruing from such programs. The wealth and income gap in America plays havoc with one percent of the rich population controlling 40 percent of America’s wealth in deep contrast to 80 percent of the poor population having a meager share of 9 percent. Again in regards to the top 10 percent of the rich population who controls 70 percent of the country’s wealth the 40 percent of the bottom-line has a share of only 1 percent. The beginning of Social Security programs can be traced to the period of Economic Depression of the 1930, which caused millions of people to become jobless and homeless signifying a severe economic downfall. In order to combat this period of severe economic crisis the then President of America, Franklin Roosevelt initiated programs of financial assistance. The Social Security program is one of those financial assistance programs initiated targeting the retired population, which earned a legal framework in 1935. The scope of the Social Security programs was further expanded in 1939 to grant financial assistance to the family and children of the retired workers and in 1956 to take care of the disabled work force. The current situation with a massive growth in the old age population owing to a decrease in the mortality rate and the ‘Baby Boomer’ population reaching old age spells increased burden over the social security programs. It is thus eating up the benefits of the program at the cost of the financial contribution made by the working force. (Matthews and Berman, 11-13). Social Security Problems Observation made on the social security policies of the developed nations reflects that they are executed on a ‘pay-as-you-go’ basis. The social security programs of these countries fail to sustain the financial needs of the growing elderly population. It is for the above reason that the social security programs taken by these countries turn out to be costly. It is observed that the elderly population is growing in a manifold amount in regards to the quanta of labor force that is the payers of the benefits accruing to elderly people. Further observation made on the social security programs reveals a stunning feature of such programs. They are found to encourage the situation of early retirement activities in the lure of deriving financial gains. This in turn increases the retirement population clamoring for financial benefits, which adds to the problem. (Gruber & Wise, 1) On the other hand, the personal savings of the American population also is in a state of a fix. It is found that the Private Savings Rate or the rate by which the Americans tend to save finances is moving about the zero level. The American society counters a dual effect as to the living standards of the people. People high in the ladder of income earning owing to factors as wage stagnation and growing disparities between their wealth and income levels lead a pompous life. On the contrary, middle class families are increasingly facing the threat of running their households and anticipate a further reduction in the wages. (Eyal & Sherman, 4) Social Security and Pension Plans The legal enactment of the Social Security provision made in 1935 states the retirement age of a person to be 65. However, recent trends reveal that both male and female workers have been applying for social security provisions from the age of 62. This situation shows a rapid growth of an early retirement population to reap the benefits of Social Security. Arguments exist for the factors, which trigger the need for early retirement. Observation made suggests that early retirement are the fallouts of poor health and mandatory practices of the government. In some other cases, it is the choice of the parties taking retirement having confidence on the savings made. However, in case of America it is found that mandatory retirement practices are not encouraged and cases are found wherein workers at the ripe old age of 70 were working. The case of health problems in American industries counts as one of the triggering factors of early retirement. A survey conducted shows that out of 539 retirees 132 people suggested health as the major factor. The role of private pensions in regards to America is growing. An estimate reveals that about 9 million Americans, which contribute to one-third of the elderly population, have access to private pensions. However, with the growing demand for social security finances the need for private pensions is decreasing. It is observed that where social security schemes occupy 40 percent private pension schemes account for only 16 percent to income of the elderly people. Further, private pension plans also lure the employees to retire earlier in order to get advantage of the plans. (Fields & Mitchell, 6, 8, 13). Extent of Social Security Problems The major cause of concern is the huge amount of financial crisis, which the Social Security programs are now facing. To this end, the Social Security’s Board of Trustees have exclaimed that by the end of 2013 it will result in a huge deficit. The Payroll Tax paid by the workers in today’s date account for 12.4 percent. It is argued that the amount of payroll tax paid is divided between the employer and the employees. However, the employer by curtailing down the wage and salary expenditure balances the event. Social Security is expected to start running huge amount of deficits by the end of 2013. The Social Security Trust Fund has been created to this end to render benefits to the beneficiaries. However, the potential of the Social Security Trust Fund in rendering financial benefits to the beneficiaries is expected to die out by 2032 making the program insolvent. However, currently the Social Security Program is showing a surplus. An estimate given for the period of 1996 shows that the total amount of taxes collected amounted to $385.7 billion. Total revenue collection for the period amounted to $424.4 billion. Payments for the period accrued to $353.6 billion, thereby resulting to a surplus of $70.8 billion. By the end of 2013, the total surplus would accumulate to $2.9 trillion constituting the reserve fund. This is just an expectation whereas the real situation counts that the cash outflow for social security would surpass the inflow by the end of 2013 making it to rely on the reserve base. (Ferrara & Tanner, 37, 42-43) The Social Security program has turned out to be a growing menace as revealed by the Social Security Audit. It was observed by the Federal Investigation that the Social Security Administration went on blindly paying for dead Americans and fake American residents. In other cases, it was observed that people living have been recorded as dead and benefits were terminated causing financial losses to the beneficiaries. In Southern California, an observation made shows that out of 305 social security beneficiaries pronounced dead 140 were still alive. Another incident shows that where a beneficiary living in New York had expired in 1990, checks amounting to $1,185 were continually paid on a monthly basis until 2008. (Doyle) The extent and nature of social security problems in regards to the retired employee base defined the paper focuses on the probable solutions that can help in reforming the program. The true nature of the program being known to help the retired and elderly population it accounts for being socially responsible in setting the matters right. Solutions to Social Security Problems One of the suggestions made about finding an effective solution to the social security problems is deferring the rise in the tax rate. This needs to continue until the gap between the revenues and payments in social security program deceases. Tax levied on the income of the workers is not returned to them at the time of their retirement. Hence, an increase in the rate of tax levied upon social security lessens the amount of benefits from the pension plans. The employer passes on the effect of rise in tax rates by decreasing the wages paid to the workers. Another suggestion cited in this regard constitutes fully taxing the earnings made through the social security programs, which will help in boosting up the capital for the same. Though it will invite a negative outlook to the suggestion made, yet it will be helpful for the future. The granting of social security assistance must be reviewed on the wealth standards of beneficiaries involved. In cases where the beneficiary has huge amount of personal assets the financial assistance from social security can be curtailed. Another suggestion given is of rising the retirement age of the working population to 70 years for gaining the full benefit of social security programs. (Mitchell & Meyers, 338-343) Further recommendations made to reduce social security problems constitute changing the computation patterns of benefits. Percentage reduction in the rate while computing the benefits would help in making savings for the same. Again, the focus on wage indexing while computing the social benefits can be shifted to consumer price indexing. It would help for targeting on the market and inflationary moves. (Livingston, 44-45). Privatization of the social security program is seen as one of the probable solutions to the problem. In this regard, it can be observed that Chile had made its social security program privatized in 1981. However, it was observed that the fund created in the private sector accounts will be owned by the contributors only. It will thereby not be responsible in meeting the needs of other beneficiaries external to it. (Ferrara & Tanner, 132-134) The Government of the United States can contribute to the social security programs by funding from its general treasury. This practice is presently followed by in other countries. This would certainly signify higher collection of taxes. In regards to citing solutions for Medicare problems in Social Security Programs the age of the beneficiaries in regards to such programs is increased. The Medicare program must cease the payments made in regards to drugs to better focus on lone term ailments.. The cost of the Medicare programs can be increased in order to meet the growing deficit. The Medicare companies stating a face value and lending the said amount to the beneficiaries can also give vouchers. Though the introduction of giving of vouchers would help, the beneficiaries save their medical costs yet it will help increase the cost of the Medicare programs. Another novel approach that can be taken to this end is of making the Medicare programs as potential saving schemes for the beneficiaries. The Medicare companies can help donate certain amounts to the deprived families on annual basis. (Moon, 233-234). Conclusion The Social Security Programs initiated in America to help the retired population is facing huge problems. The programs of social security and the like comprising of pension programs and medical benefits have lured the work force to retire at an earlier age. This has caused an imbalance in the working pattern with an increasing population of retirees. Moreover, the social security programs have been countering some administrational flaws for which it needs to be closely administered. The flaws committed result in increasing the cost of the programs and depleting the capital base. Thus, proper care needs to be taken in these respects to make the program turn effective in the future. Works Cited 1. Press, Eyal & Scott Sherman. “Retirement Security Fight”. The Nation, 2005, 280. 7, pp. 3-5. 2. Matthews, Joseph & Dorothy M. Berman. Social Security, Medicare & Government Pensions: Get the Most Out of Your Retirement & Medical Benefits. Nolo, 2010. 3. Gruber, Jonathon & David A. Wise. Social security programs and retirement around the world: micro estimation. University of Chicago, 2004. 4. Fields, Gary S. & Olivia S. Mitchell. Retirement, pensions, and social security. MIT Press, 1984. 5. Ferrara, Peter & Michael Tanner. Anew deal for social security, Cato Institute, 1998. 6. Doyle, Michael. “Social Security Audit Finds dead people getting checks”. McClatchy Newspapers, 2009, available at: http://www.mcclatchydc.com/2009/06/30/71069/social-security-audit-finds-dead.html (Accessed on October 8, 2010). 7. Mitchell, Olivia S. & Robert J. Meyers. Prospects for Social Security Reform. University of Pennsylvania, 1999. 8. Livingston, Steven G. United States social security: a reference handbook. ABC-CLIO, 2008. 9. Moon, Marilyn. Medicare now and in the future. The Urban Institute, 1996 Read More