A SOCIAL SECURITY PRIMER(on Retirement)








For a history of old age retirement systems in Europe and their development in the USA go to:www.socialsecurity.gov//history/briefhistory3.html

For information about the curent social security system go to the National Academy of Social Insurance at:www.nasi.org. (click Reporters Social Security and Medicare Source Book)

 


Introduction


Social Security is a financial resource for many Americans who are retired, disabled, or widowed. There will be an attempt to change it in Congress this coming year(2005) due to perceived problems with the system. The following frequently asked question format is an attempt to describe the system- especially as it impacts retirees(much of the same applies to survivors and the disabled)

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Isn’t Social Security Going Broke?


No. The system will continue to pay all benefits until 2041- even if we make no changes and the economy does not grow. The economy’s growth and higher wages alone will contribute to the funding of Social Security. Since its inception in the 1930’s modifications have been made to Social Security in order to respond to changing demographics and as a result the system remains solvent. There is time to make the necessary modifications now without making radical changes.


In the Future Won’t a Smaller Work Force be Unable to Provide Benefits to a Growing Population?


It will be able. Most of us know that our population of elders and therefore of retirees is growing and with baby boomers will grow even more. Those who are 18-64 will continue to be a smaller part of the population. This does seem to be an area of concern. How is it possible that our nation can afford to support retirees in the Social Security system?


In years past many people(children, disabled, and retirees) depended on workers and their incomes. The percentage of retirees is rising but not the others and the total of retirees, disabled, and children who are dependent on workers and their incomes is going down and is expected to continue to decrease.


Other possible factors which would contribute to the solvency of the system include the productivity of workers(this has been growing) and decisions by those over 65 to continue to work, delay using social security, and continuing to contribute to the system.


Doesn’t Social Security Provide a Full Income and Investment Savings Plan?


Social Security has provided a partial insurance plan for retirees. It has always been developed to supplement other income(employee pension plans, IRA’s, 401k’s,other savings, etc.). Prior to the implementation of Social Security many elders fell into poverty. That number has decreased significantly. This plan is guaranteed by the Federal Government and while not necessarily high is dependable.


Aren’t Retirees the Only Ones in the Economy to Benefit from Social Security?


Many others in addition to the 29 million retirees receive direct and in-direct benefits.

  • Adult Children – If their parents’ have a dependable income they can more easily support their own children.
  • Taxpayers – Without Social Security many more seniors would be dependent on welfare and that would require higher taxes.
  • The Economy – Seniors spend this dependable and predictable source of income during both down periods and growth periods of the economy.


Even so Won’t Privatization of the System Help Everyone?


No. But, there will be winners and losers. In the current system there is a shared risk by everyone. With privatization and the development of individual accounts the risks shift to each individual. This will depend on the expertise of each individual about the stock market and also the variability and unpredictability of the market. The skills, experience, and honesty of individual stock brokers will also be a factor in the gains or losses of each account. That part of social security cannot be guaranteed. Further, the system itself may be endangered as payroll tax dollars are diverted to this new system and thus hurt everyone. Individuals would also have to pay administrative fees out of their own accounts(possibly 15-20 %). Significant cuts in benefits may be required. For those who depend on social security income these cuts would be devastating.


Others would particularly be at risk:

  • On average women have lower incomes, live longer and interrupt their careers(due to family caregiving). All that reduces their income and their ability to save/invest for retirement. The social security system guarantees steady income. Privatization does not.
  • People of color are less likely to have other retirement income or personal savings. Less than one-third of African American seniors and one-fourth of Latino seniors receive pension benefits. For those who depend on Social Security as a crucial part of their retirement income this resource should not be placed at risk.
  • It has been promised that younger workers would benefit the most from privatization. But even for this population there would be problems. They would have to pay for current beneficiaries especially during the transition period. No one yet knows how long this would take but conservative estimates are that it would cost at least one trillion dollars. Younger workers(our society’s children and grandchildren) could pay a large chunk of this amount – possibly with higher taxes.


As this debate proceeds please learn more about how social security works. Listen to proposals for change carefully. Be wary of how proposals are marketed and of the language which is used. Pay attention to the substance of each plan. Maintain contact with your Federal Representative and Senato

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