Introduction
When President Roosevelt launched social security in 1935, he did not claim it was meant for citizens to express mutual obligation to each other. However, the president claimed the program was crucial to ensure people access to essential rights, which is critical because necessitous men cannot experience true freedom. Social Security is a government system responsible for providing financial assistance to individuals with insufficient income. These individuals include those past retirement ages, survivors, the unemployed, and the differently abled. Unemployment benefits and pension falls under social security, and taxes fund the program from contributions and salaries from the self-employed or business people. The Social Security Trust fund manages the collected income from taxes. It is a basic requirement that all earning persons in the United States contribute to the income that funds social security. While social security faces challenges, including low-interest rates and longer retirements, it is important to focus on solutions such as increment of retirement age and payroll tax and privatization of the program.
Increasing Retirement Age
The problem caused by lower retirement age should be solved by gradually increasing it. The normal retirement age is scheduled at 67, starting after the turn of the century (Brzozowska et al., 2021). Timing of the increases may be exhilarating, and the optimum age may be elevated even higher. Such proposals will substantially benefit social security by reducing benefit payments. For example, rising the ultimate retirement age to 70 by 2037 onwards will help resolve the long-range challenge for social security. Erasing in retirement age will increase the retired individuals’ life expectancy by making them wait longer to connect their full benefits or by accepting a larger reduction in their monthly payouts by claiming early. A change in the full retirement age would reduce benefits for future generations of workers and save the problem a lot of money.
A raise in retirement age will strengthen social security and enable the program to be more sustainable over the next several generations by slowing the growing costs of social security. The proposal will increase labor force participation as a larger number of older workers will stay in the workforce, raising the economic output. As a result, older persons would gain more time to build their retirement savings as they still enjoy the long retirement period. The current benefit formula will be preserved, and future retirees will receive the same benefits as the current but will begin at a later age.
Increase Payroll Tax
Tax is the major funding method and technique for social security. To face the long-term funding shortfall for social security would benefit from increased tax revenues. The tax base for social security has eroded since the last time policymakers addressed the solvency problem in 1983 (Brandon & Mohr, 2019). The situation resulted in an increased cost of non-tax fringe benefits and inequality. Increasing payroll taxes across-the-board for all working Americans means that benefits stay consistent for current retirees and provide extra contributions to help maintain the beneficiaries (Grover, 2014). In addition, the changes in the payroll tax would tailor social security to meet its cash loan needs and eliminate the effect of building up and drawing trust funds. Tax rate changes will affect all covered workers but will not change their benefits.
Partial or Full Privatization of the Program
Partial or full privatization of the programs entails a small percentage of retirement benefits being placed into an account that individuals could invest. Several Republican lawmakers, including vice president Mike Pence and President Trump, have advocated privatizing social security (Williams, 2018). Many Americans make poor investment choices due to financial illiteracy, which may lead them to a worse financial state after retirement. The private accounts will give retirees control over retirement decisions, and they would be able to invest in personal private accounts, eliminating the uncertainty accompanying the controlled program. The country Chile was involved in privatization in 1981, and the effect is often cited as a model of change that will help the United States (Ortiz et al., 2018). The changes will help establish a larger funding liability that would be the federal government’s responsibility. The proposal will be a way to modify investment procedures by the program by placing a percentage in the private sector (Reichenstein & Meyer, 2022). The changes would shift the balance of the program towards individual quality and away from social adequacy.
Mean Testing of Social Security Benefits
Mean testing for social security benefits entails setting earning thresholds where the benefits would be reduced or eliminated. This reduction is for earners with more than 80000 dollars in adjusted gross income and removal of benefits entirely for persons with more than 200,000 adjusted gross income annually (Williams, 2018). The plan’s purpose was to keep benefits away from people who do not need them. The main idea is that the social security program was initiated to support low-income workers after retirement. The proposal aims to shift the balance towards social adequacy and away from individual equity. Cutting back benefits to higher-income persons will save the program money in the long run and push back its date for asset reserve depletion.
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Changing Investment Procedures
Changing investment procedures is an alternative that would help solve the social security financial problem. Social Security trust funds assets are currently invested in the United States government bonds as required by law. The bonds are entitled to pay market rates for interest. Many analysts believe that a more volatile equity market would be beneficial to offer the program greater returns on average (Hemerijck, 2018). A change in investment procedures will allow the program to invest in a way that safeguards itself against manipulation that occurs through circumstances such as using indexed funds. The vast sum of money involved in the rate of present taxes would affect the equity markets (Theodore et al., 2017). Changes in investment procedures would cause a potential additional income depending on the size of the fund. If pay-as-you-go finance were reinstated for the program, the increased revenue would be insignificant in comparison to the size of the long-term deficit.
Increasing Limit on Taxable Earnings
Even while higher benefit costs would partially offset the higher tax revenue if all covered earnings remained creditable for benefit-computation purposes, removing the cap for employees and employers might solve roughly half of the long-term financial issue. 85 to 90 percent of earnings from covered employment are below the $61,200 annual cap on taxable earnings (Brzozowska et al., 2021). This would imply that taxation is applied to every dollar earned. The action would eventually increase the bond fund size. Due to the increased tax burden on both high- and low-income workers, it may be beneficial to take this step. The long-term fiscal burden would be reduced by around half if the employer tax cap were removed alone, without increasing benefits.
However, the revenue generated by such ideas would not closely mirror Social Security’s demands because income would grow immediately when it is not needed. Greater payments would largely offset the increased income in later years when it is most needed (Social Security, 2018)). Thus, these suggestions would maintain the current trust fund build-up and draw-down pattern, with a much later year of fund exhaustion (Ibarra, 2018). Finally, continuing to base benefits on all covered wages raises concerns about the government’s appropriate role in giving large retirement benefits to the highest-earning workers.
Government Should Reduce the Cost of Living
The higher the cost of living, the higher the benefits needed by retirees. Once the cost of living is high, it demands more income and expenditure. The government needs to work on bringing down living costs. Once this is done, telling beneficiaries to accept lower benefits will be morally acceptable. Cost of living standard changes measurement is essential in wage negotiations and may be used for retirement benefits (Patrick & Pybus, 2022). As workers’ marginal propensity to invest and save increases, additional sources of retirement security become available, reducing the strain on Social Security.
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Changing the Initial Benefit Formula
Reducing the percentages used in calculating beginning benefit payments may be conceivable, either evenly or in a way that protects low-income claimants. This change can result in virtually any desired level of savings, and if introduced gradually, it can be timed to coincide with social security’s criteria (Copeland, 2019). However, sufficiency concerns should not be overlooked as the average social security payout is just above the elderly poverty threshold. As a result, too many rapid modifications to the benefit formula could result in a significant portion of the recipient population getting inadequate monthly compensation.
Invest a Portion of Trust Funds’ Reserves in Stocks
When profits are not urgently required to pay, the social security trust funds invest them in special-issue US debt obligations. They may hold and have previously held marketable US debt securities (Brandon & Mohr, 2019). Unlike marketable Treasury securities, which are only guaranteed to return face value upon redemption, special-issue debt sold to Social Security trust funds may be redeemed at face value at any time. In practice, redemptions before maturity occur only when necessary to cover current expenses and not to reinvest the money at a higher yield as interest rates rise (AĢlvarez, 2011). Some have urged that the Social Security trust funds invest a portion of their reserves in equities since stock returns have consistently outpaced fixed-income assets.
Conclusion
Social security is a government system that offers financial assistance to persons with insufficient income, such as the retired, unemployed, and differently-abled person. Social Security gains its funds from taxes paid by working persons. The system faces the possibility of a lack of funds to perform its functions. Different ways can be used to counter the issues in social security. These solutions have a common goal: increasing tax income and reducing benefits paid off by social services. Not considering the challenges would lead to the long-term solvency of the program. The long-range deficit faced by social security can be eliminated by enacting one or more solution proposals provided by this assessment. Implementing solutions now rather than later would be beneficial to regain public confidence in the system and offer people planning retirement time to accommodate the changes.
References
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