Burlington
High School
Burlington, Kansas
Teacher: Devra Parker
To Reform
or Not to Reform:
Social Security and Private Accounts
By
Zach Smith
12th grade
In August of 1935, President Franklin Roosevelt signed the revolutionary Social Security Act. This bill was just one of the many programs FDR created to help relieve the burden of the Great Depression. Seventy years later, Social Security has helped millions of America’s seniors in retirement, but the system is approaching a turning point in the near future. The question is will Social Security benefits be around for the younger workers of today that are paying into the system? President George W. Bush’s plan to reform the Social Security program will keep the promise of benefits for future generations.
Social Security has always been a “pay-as-you-go system,” meaning that the
workers of today give part of their paycheck money to the government who then
pay out the money immediately to seniors who receive Social Security benefits.
The government guarantees that if a person pays money to Social Security for a
minimum of ten years, when the person reaches retirement age, he will receive
benefits paid from the current U.S. workforce. Back in 1950, 16 workers
supported one retiree, with each worker on average contributing $900. Today,
only three workers support one retiree, with each worker contributing $4,900 on
average. Why is this significant though?
The problem is that in 2008 the baby boomers will begin to retire in the
masses. This will increase the amount of benefits being paid out and decrease
the amount of money being paid into the system by the people who just recently
retired. The surpluses of money the government receives from the American
workforce will gradually decrease until there is now longer any extra money. By
2017, the amount of benefits being sent out will be more than the government
receives in payroll taxes. These future deficits will have a large impact on
the economy. Congress will then have to come up with the money to continue to
support the program. They will either have to raise taxes to bring in billions
of dollars of new revenue, cut current government programs even more like
education and highways or just continue to let the deficits soar! What does
that mean? By 2040, Social Security and Medicare are projected to take up 60
percent of total income taxes collected. The money remaining would have to
finance the rest of the entire government. In 2041, the Trust Fund runs dry.
Social Security’s fate is inevitable unless someone takes action now to save the
system.
President Bush unveiled his plan to revamp Social Security in late April of 2005. He stated that the current system would not change in any way for those born before 1950. The main focus of his plan is establishing personal retirement accounts (PRA) for workers who would rather invest a portion of their payroll taxes rather than have it go into the current system with no guarantee of receiving benefits in the future promised by Congress. PRAs would be completely voluntary to all workers. Money received from payroll taxes would go into a conservative mix of bonds and stock funds that would have the potential to earn a higher rate of return than the current system could provide. A young worker who earns an average $35,000 a year over his or her career would have nearly a quarter of a million dollars saved in his or her own account upon retirement. Those savings would provide a nest egg to either supplement that worker’s traditional Social Security check or the money could be passed on to the worker’s children and grandchildren. A person would also have real assets of ownership to the money placed in their PRA, replacing the empty promises of the current system.
Bush’s Privatization Plan critics argue that adding private accounts will do
nothing to solve the problems facing Social Security. They believe that
Congress should first only consider changes that strengthen the system’s
finances. Opponents think that common sense bipartisan changes can help restore
Social Security since it has worked in the past. Critics state that because
surplus-funded accounts could only be invested initially in U.S. treasury bonds,
the government would still continue to use Social Security surpluses to pay for
other programs. Some fear that lower retirement income could result for people
that chose private accounts. Beneficiaries could find themselves worse off, due
to fluctuations in the market than if they would have stayed with regular Social
Security. The last point against the Bush plan is the cost of implementation.
Private accounts would add $1 trillion to national debt in just ten years and
cost at least $25 billion through 2016.
I believe that Bush’s plan for establishing PRAs are the best way to insure that
the money I pay in payroll taxes will be around in the form of Social Security
benefits in 2053 when I turn 65. Reform should make benefits more in line with
what the system can afford to pay and PRAs should allow younger workers to have
benefits to enjoy that are much greater than Social Security would be able to
provide after 2041. The plan is not risky because there are several safe
investment choices and the accounts would automatically be invested in a
lifespan fund. This allows younger workers to take advantage of the higher
returns that stock investments offer but it also ensures that the portfolio gets
safer as the worker gets closer to retirement. Private accounts will cost a few
trillion to be set up but those costs out way future deficits of around $27
trillion if nothing is done to the current system.
In short, Social Security needs reforming no matter what. Personal retirement
accounts outlined in the President’s plan are one of the best solutions to
solving such a critical domestic issue. If nothing is done, the government will
fail to live up to its promises to the American people who paid into the system
and therefore deserve retirement benefits. Beside the point, a huge burden will
be left on the future generations of this great nation without action.
1 – Very Informative, Pro Reform Basis
http://www.socialsecurityreform.org/index.cfm
http://www.heritage.org/Research/SocialSecurity/bg1811.cfm
http://www.heritage.org/Research/SocialSecurity/briefing.cfm
http://www.whitehouse.gov/infocus/social-security/index.html
2 – Very Informative, Anti Reform Basis
http://www.americansforsocialsecurity.com
http://www.ncpssm.org/
http://www.dudewheresmyretirement.com/
http://www.protectyoucheck.org
General Information, Neither Pro or Anti Reform
http://www.heritage.org/research/socialsecurity/em940.cfm
http://www.socialsecurity.org/11-17-99.html
http://ssa-custhelp.ssa.gov/
http://www.ssa.gov/pubs/10063.html
http://www.ssa.gov/pubs/10069.html
General Information, Neither Pro or Anti Reform
http://www.ssa.gov/retirechartred.htm
http://www.ssa.gov/policy/docs/factssheets/state_stats/2003/ks.html
http://www.bonds.yahoo.com/ir_bd2.html
http://www.aarp.org/research/socialsecurity/benefits/aresearch-import-366-FS94.html
http://people.howstuffworks.com/social-security.htm
Answers To Questions Prompted By The Required Reading
Q1- Explain why some people:
a) claim that there are no social security trust funds
The reason why people believe there are no social security trust funds is because the actual established trust funds have no real cash in them; they are just used for accounting purposes. Any amount of money that is placed in the trust fund is converted into Treasury Bonds, which the government immediately spends.
b) claim that politicians have spent the trust fund money to run the government
People who believe the government has used the trust fund money to run the government are only partially right. Any extra Social Security money brought in through taxes, after paying out Social Security benefits, is spent like any other tax revenue. These funds are often used by politicians to finance anything from highways to defense projects.
c) claim that the trust fund money is invested
Any money that is placed into a trust fund that is not immediately used, by law, must be invested. Extra income each day is placed into securities which are backed up by the Federal government. By investing this money, it makes the trust funds just as holding cash.
Which of the above do you agree with and why?
The last two claims I only
agree with because the first claim is false. There is a social security trust
fund called the Old-Age and Survivors Insurance and Disability Insurance Trust
Funds. There may not be any real cash in it, but the fund exists. When money
is placed into the trust, it is either used to pay government expenses, like
monthly SSA benefits, or is required by law to be invested. Since the funds are
being invested or spent so frequently, it seems as if the trust funds are empty.
Q2- When U.S. Treasury Bonds are sold where does the money go and what is it used for?
When a citizen buys a U.S. Bond, the money spent on the bond is loaned to the government. It is used to finance government programs and the government payroll. Once the bond matures, the government pays back the investor the money he paid in bonds 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
Many over the age of 65 depend on Social Security because they are unable to work and most likely have spent a majority of their savings. I believe if the elderly begin planning for retirement earlier and low-pressure jobs for seniors can be created, the elderly would not be as dependant on Social Security.
Q4- What is the average life expectancy of an American over age 65 today?
The average life expectancy of an American over the age of 65 today 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?
Kansas seniors receive approximately $944 per month. This average is larger than the average benefit in California, the state with the largest population, whose retired workers receive $926 per month.
Q6- In 2003 what was the amount of social security income derived from interest
earnings? How much from payroll taxes?
In 2003, the government collected $79 billion from interest earnings derived from the amount of social security income. The amount earned from payroll taxes was $472.8 billion.
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 can be acquired by anyone who works and is full retirement age regardless of the amount 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 the benefits is deducted. In 2004, age 65 was considered full retirement age. For anyone born after 1960, the age for receiving full benefits is 67.
Q8- Give two examples of “special payments”.
Two examples of special payments include moving and relocation payments and payment 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 those who have not yet reached retirement age, Social Security provides benefits such as disability insurance. This disability insurance covers physical and mental disability lasting at least 12 months if a person is injured and is prevented from or limited to working for an income.
Q10- How long does it take a worker under age 24 to be qualified to receive social security benefits?
It takes a worker under the age of 24 about ten years of paying into the system to become qualified to receive social security benefits. If a person under 24 has become disabled, he or she may qualify for benefits with a minimum of 18 months of work in the three years prior to being disabled.
Q11- Do you think the social security system needs to be reformed now? Support your answer with facts.
Social Security most definitely needs reform now. Reports show that by 2017, the Social Security system will begin to run a deficit. President Bush believes that fixing the problem now will be much easier than it would be 30 years from now when the program is in imminent danger. Although Social Security is not facing immediate crisis, I believe we need to act now if the younger generation s expect to see money from Social Security that they paid into the system their entire working careers.
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?
Yes, I would opt out of the Social Security system and invest the portion of my pay in a private account. I would participate in private accounts because historically, the stock market out performs the returns on Social Security. Plus with the PRAs, I am guaranteed ownership of my account. The private accounts have a much greater chance at providing a nest egg for retirement or being able to have savings that can be passed on to children and/or grandchildren.