Introduction
Social security is a vital component of both developed and developing economies. It is a set of measures governments implement to guarantee access to healthcare and ensure income security when individuals get old, sick, or lose employment. Governments worldwide are facing numerous challenges as they struggle to address the needs of an aging population that a diminishing workforce must support. There is a need to implement innovative solutions to address the problems contemporary societies face. The challenges that characterize the current social security system necessitate the implementation of a mandatory private system capable of meeting the needs of the retiring public.
Challenges Facing the Current Social Security System
The current Social Security trust fund generates insufficient revenue and is unable to meet the public’s needs. In a study examining the ability of retirement plans to adequately compensate retirees in 25 nations, the United States was ranked last (Tweedy, 2018). Privatization is critical because it would deliver higher benefits. Evidence suggests that the central trust fund financing the Social Security system is likely to use up its reserves by 2034 (Social Security and Medicare Board of Trustees, 2022).
If this were to happen, the system would have to rely entirely on current tax receipts, which cover approximately 80% of the benefits scheduled for 2035 (Social Security and Medicare Board of Trustees, 2022). The increasing number of retirees exceeds that of the workers supporting them, resulting in a situation where the value of benefits payouts far exceeds tax receipts. It is estimated that annual deficits will increase exponentially in the future.
The increase in life expectancy is primarily to blame for the current dilemma facing the Social Security program. American men aged 65 are expected to live for an additional 15.3 years in 1990, a significant increment from 12.7 years in 1940 (Social Security, n.d.). It is also worth noting that women in the same age group were expected to live for an additional 19.6 years compared to 14.7 in 1940 (Social Security, n.d.). The problem has been exacerbated by the large number of retiring Baby Boomers. Evidence suggests the number of employees supporting social security beneficiaries will drop drastically.
Advantages of Privatizing Social Security
The privatization of the social security fund has numerous advantages. For instance, it would enable workers to make direct decisions about saving to secure their futures. The primary driving force behind privatization is the desire to reduce government excesses and address its inability to meet the needs of retiring citizens. The privatization process would involve transferring a majority of the mandatory payroll tax contributions to private accounts managed by individual contributors. The benefits from the plan above can be transferred from generation to generation.
The proposed plan also allows workers to increase their contributions if they wish to retire early or enhance the value of their retirement payouts. The accumulation of wealth in private retirement accounts could stimulate increased savings, thereby making it easier to manage a large retiring population. Privatizing social security can lead to wage growth that employees can receive without bearing the burden of taxation (McKiernan, 2021). It is worth noting that privatization is associated with both long-term benefits and short-term costs.
Conclusion
The current system’s inherent challenges necessitate adopting a private system that meets the needs of the retiring population. The government faces challenges that make it difficult to meet the needs of an aging population. The increasing life expectancy, coupled with a declining workforce, means that the Social Security system’s reserves will likely deplete soon. This means that the current workers will likely face challenges when they retire.
The most effective solution for the current problem is privatization. A mandatory private system would ensure that individuals maintain control over their financial futures, and the resultant stimulation of savings would ease the pressure on the government’s social security initiatives.
References
McKiernan, K. (2021). Social Security reform in the presence of informality. Review of Economic Dynamics, 40, 228–251. Web.
Social Security. (n.d.). Social Security history: Life expectancy for social security. Web.
Social Security and Medicare Board of Trustees. (2022). Status of the Social Security and Medicare programs: A summary of the 2022 annual reports. Social Security. Web.
Tweedy, J. (2018). Social insecurity: A proposal to reform the United States Social Security Retirement System. Indiana International & Comparative Law Review, 28, 129–161. Web.