Alyssa Reeves

Burlington High School
Burlington, Kansas
Teacher: Mrs. Devra Parker

A Time for Transformation
By Alyssa Reeves
12^th grade

In the wake of the Great Depression of the 1930s, America was facing a major problem: poverty rates among senior citizens exceeded 50 percent. President Roosevelt produced relief in 1935 in the form of a new program. It was known as social security. By taxing the payrolls of working employees, retired and unemployed citizens were able to receive money to assist with their living needs. 70 years later, social security still exists, but its fate is somewhat equivocal. President George W. Bush has proposed a plan to reform the social security system, and his ideas are heavily debated.

In his State of the Union Address last February, President Bush stated that although social security is a symbol of trust among American’s generations, it is in need of wise and effective reform. While a 20^th century success, the program is now headed toward bankruptcy. The president encouraged everyone to join together to strengthen and save social security. Pro-reformers express a variety of motives for altering this system.

First, since social security was set up in 1935, it simply does not measure up to today’s needs. Back then, most women stayed home, where about 60% of women work outside the home now. The life expectancy has greatly increased due to advances in medical and pharmaceutical technology. People are living longer.

Also, in three years the Baby Boomers, or those born in the 1950s, will be retiring. By the year 2031, there will be twice as many older Americans as there are today. Approximately 75 million Americans will be retiring. This means most of them will also be expecting to receive social security benefits. Social security collects money from people who are working so retirees can receive payments. In 25 years, there will be 201 million Americans old enough to work, yet only three-fourths of them will actually be in the work force. Pretty soon, social security will start handing out more money than it is taking in.

An expected rise in benefits is another huge problem facing this savings system. Benefits are tied to wage growth and not inflation, thus they are growing faster than the rest of the economy. As a result, employees who are 20 now are projected to get 20 percent more in benefits than today’s retired worker. Here’s the catch: the system does not have the money to fulfill this promise.

Every year that passes while officials argue over ways to fix social security’s decline is costing America. The Social Security Trustees report $600 billion is lost annually waiting for a solution. By not acting now, the only solution will be higher taxes, massive borrowing by the government, or even severe cuts in spending on government programs or social security itself. We realize early that there is a problem, and fortunately, there are several strategies for elucidating this dilemma.

Basically, we need to understand the problem and come up with logical, reasonable solutions. Social security cannot afford to pay benefits at the rate the law requires. Perhaps the benefit formula needs to be adjusted. If there is too much money going out and not enough coming in, Congress should focus on balancing the two.

Designing a new social security system is not an easy task. If it was, it would have been done by now. There are three valid options for a retirement system. An unfunded system would not bother to build up a surplus. This way, it could focus on keeping a balanced cash flow by adjusting benefits and payroll taxes. A fully funded system would pay all benefits from earnings on investments. Regrettably, in a real world, this notion is impossible. The financial advantages of the United States are not even close to pay off benefits for retirees and still have money left over for investors. So, a partially funded system should be considered. If social security is partially funded, either through modest trust fund investments or a modest individual account system, a stable set of assets is definitely attainable. Regardless of whether the government would choose an unfunded system or a partially funded one, it is clear that social security is not hopeless. With patient planning and quick action, the retirement system can, in fact, be recovered.

So what are the anti-reformers thinking? Is social security really okay? Are reformers simply blowing this situation out of proportion? People against changing the social security system argue that President Bush’s proposal will throw a devastating blow: benefit checks will be slashed and seven out of ten people will lose money.

A major concept behind George W. Bush’s social security proposal is “progressive price indexing.” In other words, low-income families would be protected from benefit cuts; middle-class families would see moderate changes, and high-income workers would face the highest cut in benefits. At a glance this idea may sound ingenious, but upon careful examination, it is easy to see that this could pose as a big threat to all workers by significantly reducing the amount of overall support for social security.

The president has also recommended setting up private accounts. It is common sense that the costs of these accounts would only be balanced by reducing the social security benefits of the account holders. Simply put, millions of middle-income workers would receive little or no social security benefits in retirement.

Thus, it is hard to determine exactly what kind of situation social security is in. Is it really necessary to reform the system, or are young workers simply overreacting out of unnecessary greed? Prior to extensive research, I have reached a conclusion of my own: social security does need to be reformed. Widespread studies show the financial situation for social security is only getting worse. The longer we sit around and deny that a problem actually exists, the greater burden today’s young workers will face when they reach retirement age.

Answers To Questions Prompted By The Required Reading

Q1- Explain why some people:

a) claim that there are no social security trust funds

Any amount of money that is in a trust fund is converted into Treasury Bonds, which the government immediately spends. The government has to pay back the borrowed bonds including interest, so there is never actually any money in the trust funds.

b) claim that politicians have spent the trust fund money to run the government

Any extra Social Security tax collections after paying off the trust fund is spent like any other tax revenue. Funds are often used by politicians to finance anything from defense to education programs.

c) claim that the trust fund money is invested

By law, any money that is put into a trust fund that is not immediately used must be invested. Every day, extra income is put into securities which are backed up by the Federal government. Investing this money makes the trust funds just as flexible as holding cash.

Which of the above do you agree with and why?

I agree with the last two claims. The first statement is not true. There is a social security trust fund. It’s called the Old-Age and Survivors Insurance and Disability Insurance Trust Funds. There may not be any cash in it, but it exists. When money is put into the trust fund, it is either used to pay government expenses, or is required by law to be invested. The funds are constantly being invested or spent, so it may seem as though the trust funds are empty.

Q2- When U.S. Treasury Bonds are sold where does the money go and what is it used for?

The money one spends on a government bond is loaned to the government. It finances government programs and helps the government meet its payroll. When the bond matures, the government pays back the investor with his money in full plus interest.

Q3- Why do you think that social security is the only source of retirement income for 22% of those over age 65? How would you change that? Please comment if you know an elderly person who is totally dependent on a monthly social security check.

Some people over the age of 65 are unable to work and are more likely to have spent down a majority of their savings. I believe this could be changed by stressing the importance of planning for retirement earlier in life and by creating low-pressure jobs for elderly who seek another source of income.

Q4- What is the average life expectancy of an American over age 65 today?

The average life expectancy of an American over age 65 is 16.3 years.

Q5- What is the average social security benefit in your state? Is it more or less than the average benefit of the state with the largest population in the United States?

Retired workers in Kansas receive approximately $944 per month. This average benefit is more than the average benefit of California, the state with the largest population, whose retirees get $926 a month.

Q6- In 2003 what was the amount of social security income derived from interest earnings? How much from payroll taxes?

In 2003, the amount of social security income derived from interest earnings was $79 billion. $472.8 billion was from payroll taxes.

Q7- Who can get full retirement benefits even though they continue to earn income after attaining full retirement age and who cannot? In 2004 what was considered “full retirement age”?

Full retirement benefits may be attained by anyone who works and is of full retirement age regardless of the amount of money he earns. For anyone who is not of full retirement age, there is a limit on how much he can earn and still receive benefits, or a small portion of benefits is deducted. For anyone born after 1960, the age for receiving full benefits is 67.

Q8- Give two examples of “special payments”.

Examples of special payments include moving and relocation payments, and payments for annual, sick overtime and compensatory leave balances.

Q9- What benefits does social security provide to people who have not yet reached retirement age?

For people who have not yet reached retirement age, social security provides benefits such as disability insurance. If a person is injured as is prevented from or limited to working for an income, disability insurance covers physical and mental disabilities lasting at least 12 months.

Q10- How long does it take a worker under age 24 to be qualified to receive social security benefits?

A person who is under the age of 24 must work at least 10 years in order to be qualified to receive social security benefits. If a person under the age of 24 has become disabled, he may qualify for benefits with a minimum of 18 months of work in the three years prior to becoming disabled.

Q11- Do you think the social security system needs to be reformed now? Support your answer with facts.

I believe the social security system does need to be reformed now. Projected reports show that by 2013, the Social Security system will begin to run a deficit. President Bush believes that although Social Security is not facing an immediate crisis, it will be easier to fix the problem now than it will be in 30 years, when the system is in imminent danger.

Q12- Suppose you are a young working person. If you could opt out of the social security system and invest the portion of your pay that would otherwise be invested for you, would you choose to do so? Why or why not?

No, I would not choose to opt out of the social security system. I would participate in setting aside a portion of my earnings toward Social Security. The basic concept of Social Security is very much viable. However, people’s approach toward this program needs to change. Social Security is set up so that when a person retires, he will be able to use the money he has saved to live on. Social Security simply provides extra funds, or as some would call it, “fun money”, in order to enjoy life a little more.

Websites Used

1 – very informative, pro reform basis

http://www.socialsecurityreform.org/index.cfm

http://www.whitehouse.gov/infocus/social-security/index.html

http://www.heritage.org/research/socialsecurity/bg1811.cfm

http://www.teamncpa.org/main/index.php

http://www.heritage.org/research/socialsecurity/briefing.cfm

http://www.sscommonsense.org/

2 – very informative, anti reform basis

http://www.protectyourcheck.org

http://www.ncpssm.org/

http://www.ourfuture.org/