Social security is a program ran by the Social Security Administration (SSA). Importantly, social security is the foundation for economic security for retired persons, disabled individuals, and their families in the United States. Millions of the residents in the United States pay the taxes, and over 61 million collect their monthly remunerations. Research by Horan, Wise, and Horan (2019) showed that about one in every four families in the United States receives income from social security. With the rising number of families getting income from social security, it is critical to understand the social security system of the United States. Importantly, this paper focuses on the social security system and identifies that social security funds come from payroll taxes, but the generated funds cannot cater for the expected payouts due to the high number of aging persons in America today hence showing the need to adjust the benefits formula and increase the retirement age.
The Federal Insurance Contributions Act (FICA), which is a form of a dedicated payroll tax, aids in the funding of the social security program (Steinbrink & Cook, 2002). An individual, together with their employers pays 6.2% each of their wages (Yasar, 2009). For self-employed persons, they are eligible for paying the entire 12.4% of their salaries to cover for the social security program (Yasar, 2009). The law of the United States provides that this designated tax ought to cover for social security.
Further, the social security fund paid through taxes is not the same amount that an individual receives later in life. According to Beland (2007), social security is a pay-as-you-go system, which means that the amount provided through FICA helps in funding payments to people that are currently receiving their benefits including the retirees and disabled persons or the survivors of the workers who have passed on among other beneficiaries. Consequently, 72% of the social security funds go to the monthly remunerations of retirees and their families, 16% caters for the interests of the disabled workers and their families, 9% goes to the survivor allowances, while less than 1% of the amounts is set aside for administrative costs (Steinbrink & Cook, 2002).
One of the main challenges of the social security system is the rising number of aging populates and the decreasing number of working populations. Currently, employed persons and their employers pay 6.2% payroll taxes each to the social security system. Self-Employed persons pay 12.4%. In the past, Bajtelsmit and Rappaport (2018) indicated that more money came in the social security system, and the surplus would be directed to a trust fund spent in individual securities as a form of investment. However, Americans are living longer, and giving birth less hence implying that few workers are around to support their retirement benefits (Bajtelsmit & Rappaport, 2018). The money generated in the system is thus not enough to pay for the expected payouts. Since the year 2010, the SSA has been using the interests accrued from the treasury securities to cover the deficits (Bajtelsmit & Rappaport, 2018). If no solutions are implemented, SSA is expected to start redeeming the securities by the year 2020, and the fund would likely run dry by the year 2035. At this point, most retired persons and other beneficiaries of the social security funds will not have their dues.
Some of the proposed solutions to the issues of lack of enough finances to cater for the expected payouts are to increase the retirement age, which will help ensure that the working populations work for a significant period before retirement to help to raise the overall social security funds accrued. Another solution includes adjusting the benefits formula and providing more benefits to people who need it more. Low earners ought to have higher benefits since they probably lack pensions in their workplaces while upper-income earners could get limited benefits since they can save for their retirement. However, eliminating the benefits accrued by higher earners, the idea and concept of social security as an earned benefit for workers would change (Beland, 2007).
To sum this up, social security funds is a form of payroll taxes aimed at providing support to the retired, disabled, and survivors. With the current demographics, the money accrued through the social security system is not enough to cater for the expected payouts due to the rising number of aging persons and a reduced number of working populations. Some proposed solutions to this issue, as discussed in this paper, include increasing the retirement age and adjusting the benefits formula.
Bajtelsmit, V. L., & Rappaport, A. (2018). Retirement Adequacy in the United States. Journal of Financial Service Professionals, 72(6), 71-86. https://www.soa.org/globalassets/assets/files/resources/research-report/2018/retire-adequacy-us-concern.pdf
Beland, D. (2007). Ideas and Institutional Change in Social Security: Conversion, Layering, and Policy Drift. Social Science Quarterly (Wiley-Blackwell), 88(1), 20-38. https://doi.org/10.1111/j.1540-6237.2007.00444.x
Horan, P., Wise, I., & Horan, T. (2019). The U.S. Social Security System: How It Works, Its Financial Situation, and the Short-Changed Benefits Paid to the Most Vulnerable. Review of Business, 39(1), 15-28. https://www.ignited.global/case/business/us-social-security-system-how-it-works-its-financial-situation-and-short-changed
Steinbrink, J. E., & Cook, J. W. (2002). Understanding Social Security: A Civic Obligation. Social Studies, 93(5), 209. https://doi.org/10.1080/00377990209600167
Yasar, Y. (2009). It's the Prices, Stupid: The Underlying Problems of the U.S. Social Security System. Journal of Economic Issues (Taylor & Francis Ltd), 43(4), 843-865. https://doi.org/10.2753/JEI0021-3624430402
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Essay Sample on Social Security: The Foundation of Economic Security for Millions. (2023, Feb 11). Retrieved from https://proessays.net/essays/essay-sample-on-social-security-the-foundation-of-economic-security-for-millions
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