Social Security Today The History of Social Security: What it is and How it Works

The Social Security system was established in 1935 by President Roosevelt in order to provide some form of economic security to the elderly. The first world war and the following world wide economic depression had left many elderly people without a support system. This insecurity, along with the general economic turmoil of the era, led to many radical movements calling for state-sponsored pensions and aid for the helpless. One of the most popular programs, which almost replaced the Social Security program, called for a national sales tax to provide pensions. (DeWitt) However, the program finally put in place functioned instead by creating a flat tax on worker income, which created "credits" that would later give that worker benefits comparable to his income. Social security did not actually address the needs of those who were already elderly at the time and who had not paid into the system, but it did assure that future generations of the old and infirm would have financial aid.

Social Security was originally designed as a retirement program, however it was eventually expanded to include benefits for disabled individuals, and the dependent families of retirees. Today benefits are available to people of all ages who become disabled and may or may not be eligible for welfare-type payments. Eligibility is determined by age or disability status, and by work history. In order to receive Social Security benefits, one must have paid into the program. (SSA) Social Security is particularly helpful for middle class recipients because its payments are based not just on need but on the rate at which one paid into it, which means that a disabled individual will usually receive monthly stipends of about half of their previous monthly incomes. For those who were previously on restricted salaries, however, Social Security may not pay enough to survive on and may need to be supplemented with welfare where available. Oddly, despite the fact that amount of benefits are determined by the amount of taxes one pays (hence credit), Social Security is not pre-funded by payments, and has very little reserve.

Social Security is becoming Insecure

There are several major concerns with Social Security today. The biggest concern is that as the population ages, there will not be enough benefits to support all the elderly and still maintain enough funds to support the current generations when they retire. As geriatric medical care becomes increasingly advanced, many people are living for decades after retirement, and may take considerably more out of the system than they put into it. (Bartlett) Many people think that social security will be bankrupt before today's young people are ready to retire. Another concern is that Social Security does not give enough money for most people to live comfortably, and that the government mishandles funds.

According to 1999 polls by CNN and Gallup, 82% of Americans think that Social Security has major problems or is in crisis (only 2% think it has no problems), and 56% think that it needs major changes or a complete overhaul. These polls show that Americans are aware of the very real issues Social Security is having today. According to Bruce Bartlett, of the National Center for Policy Analysis, in the coming years workers paying social security taxes will be far outnumbered by retirees collecting them! "The combination of a smaller working-age population and a larger elderly population means that there will be fewer workers to support each retiree. There were more than five workers for each retiree in 1960. Today there are 3.3. And by 2030 there will be just two workers to pay all the taxes required to pay the benefits of each retiree." This essentially means that each worker will be responsible for supporting himself and paying half the support for some unknown old person as well, plus administration costs. This is an unreasonable burden.

In all fairness, there is a possibility that this crisis is exaggerated. "There's no crisis," says Robert Ball, of the Social Security Advisory Council. (Dreyfuss) Those who dismiss the crisis suggest that simple changes to the current system could easily help it overcome the impending baby boomer burden

What about Privatization?

Some people suggest that in order to escape putting this burden on the young people of tomorrow, social security should be privatized, which is to say that people should go back to financing their own retirements, perhaps in some sort of government-mandated way. For example, some suggest that...

This could be done in an entirely private way, by merely abolishing social security and encouraging investment, or by having the government oversee it.
The pros of this situation would be that it would significantly reduce the social security burden on individual workers. Social security takes more than a tenth out of every poor and middle class worker's income currently, though it takes considerably less out of the wealthy's income (after a certain level of income, according the SSA's FAQ, one no longer has to pay the flat tax), and it is possible that they could better invest that money themselves. This would, in some ways, be an investment in the future of young generations, whose social security burden is likely to increase otherwise. Additionally, many stocks make better returns than do the investments made by the government.

The problem with this solution is that many people will probably choose not to invest the amount they saved in stocks, and will end up old and without pensions, just like they did in the 1930s. (In fact, it might even be worse, considering how many less employers offer pensions today and how fluid the work market has become) Another problem is that people might not be able to save enough to cover unexpected disability. Yet another concern would be that if investments were put in private stocks, retirees would be at the mercy of the market and would risk loosing everything. There was a reason that social security was established, and we would do well to remember that it was necessary then, and is probably necessary now. If privatization were invoked, it would slowly dry up all funds for current retirees who could not have sudden benefits from these private accounts, destroying the weak and poor who depended on it.

Can the System be Saved?

Saving Social Security is not impossible. Many activists pushing for privatization are business moguls who merely want to get their hands on the investments it would breed. According to Robert Dreyfuss, the entire scare has been manufactured by Wall Street lobbyist. Even without any adjustments, the system will finance about 75% of its current level even when the trust funds are depleted in 2030 (though that number may continue to go downhill). However, further adjustments could be made. For example, the age at which retirement benefits began could be raised significantly. (Dreyfuss) When Social Security began, the average life span after retirement was only 12 years. Today it is 15 years, and in the next few decades it will probably rise to over 17 years. (Bartlett) This would justify raising the retirement age to reflect our lengthening life-spans. Social Security Disability would still cover those elderly people who were physically unable to work. Why should healthy working individuals be allowed ot go on public dole merely because they are old? Other changes would also raise income. For example, the main problem with social security today is that the workforce is decreasing while the number of retirees is increasing. America could work to actively increase the workforce by granting immigration licenses to a large number of very young, able bodied individuals once the baby boomers start retiring. These new workers could bolster the economy. Additionally, the social security payment exemptions which exist for people over a certain income level could be abolished, while a more reasonable cap on benefits could be set to prevent benefits from being paid to those who are already independently wealthy.

Another option would be to invest government funds in more high-yield stocks. Such savings could "grow on a compounded basis by 5 to 10% a year or more." (Dreyfuss) Many advocates of privatization say that this would be too socialist (because the government would own stock). However, our government already gives huge "corporate welfare" packages to companies -- it seems more reasonable to invest in stocks than to just hand out funds.

Most of these options are not being widely discussed, however. This may be why 21% of those polled in 2002 strongly supported privatization, and 35% somewhat supported it. Most people are not even aware that there are other options. In 2004, 67% of those polled said that individuals should be allowed to invest up to 5% of their Social Security contributions in stocks. Despite this belief, a full 80% also believed they would indeed get Social Security when they retired. The fact that support increased yearly shows that advocates for privatization are increasingly getting their…