Social Security and Retirement

Paragraph sequence

This essay starts with the introduction which outlines what will be covered in the whole essay. The introduction also has a thesis statement which gives the stand taken by the author. The essay proceeds in the next chapter with background information which discusses relevant information concerning social security in reference to retirees' coverage of their benefits. Giving the background information about the background of social security makes it possible to speculate on the future of the social security which is tackled in the next chapter. The discussion on the future of the social security clarifies that it is not possible for the social security to cater for the employees' needs after they retire. Next we discuss that if the right measures are put in place by the government then the retirees' should have no worry as their benefits guaranteed. Next is a chapter that counters the previous one stating that social security will not be able to pay for the retirees as statistics show that it will be broke by 2042. Finally we have a conclusion that summarizes the whole body of social security covered. In the end we present the references from which the information was sourced from.

Social security in the US was started in the year 1935 by the then President Roosevelt. Initially a successful story meant to cover for retirees as well as the disabled, the system has been a major concern to industry players and the federal government because of its worrisome statistics showing that the system will exhaust its funds by the year 2042. Because of this, the question on many people's lips has been whether in the U.S., they do need to plan for retirement as Social Security will cover for their needs when they are retired. In this argumentative essay, we will look at both options; the Social Security plan will cover for retire and thus no need to plan if you retiring. We will also look at the possibility of the system failure and thus examine what will happen to the retirees, to plan or not. Therefore, the thesis statement of this essay is social security will not cover for the retirees benefits.

Background information

Social security is a federal government program that was established in 1935 that mandated supplemental retirement system in the US. Motivated largely by the events of the great depression, President Roosevelt wanted the government to assist the elderly during retirement years and assist the disabled or children of deceased workers. Therefore social security is defined as a federal government social insurance instituted to provide social protection against old age. It involves funding the social security through payroll taxes deducted from the employees' salaries.

The future of social security

Social security has been there in America for the last 65 years. The promise of security for the American employees and their families has been kept throughout since inception of the plan. But for now, the system is facing financial problems and unless the right action is taken then it is estimated that by the year 2042 the social security funds will be exhausted. Thus the younger workers' retirement benefits are in jeopardy. This is because today's number of adults has grown to 35 million above the retirement age. These retirees' social security benefits are funded by today's workers. Unless the right action is taken now, in the next 13 years the system will be paying more in benefits than the total amount it is collecting in form of taxes and the funds will be exhausted by 2042. This is coupled by the fact that the elderly retired Americans over the age of 65 will have doubled by the same year 2042 and there will not be enough younger working people to pay benefits for the retiring (Barnhart A. 2005).  

Although social security is a retirement program, there are benefits that are accrued by joining the scheme. These include; retirements for the disabled, families of a deceased worker and the disabled. Through social security, today more than 47 million people receive some sort of social security in America. Approximately, 85% of the collected tax goes to a trust fund that pays retirees and their families.   

Social security will cover retirees

It is shown that with the current trends, social security will be broke by the year 2042 but there is a remedy and if taken correctly, the system will continue supporting American retirees for a long time to come. This means the American retiree should not worry over retirement should the government take the right steps.

For retirees, they start receiving their when they attain the age of 62 or above. Benefits are applied three months before the date one wants to start receiving the benefits. The social security benefits are then paid by direct deposit or by registering for the Direct Express card program. For retirees to become eligible to receive benefits (by the year 2005) they need to have accumulated at least a total of 40 credits which is equivalent to about 10 years work. Since the year 1935, retirees have been receiving their benefits from the scheme.

The retirement benefits do vary according to the time an employee retires. If a member retires when s/he reaches full retirement age, they will receive their full retirement benefits unlike when retiring before reaching full age. There's also the option of working past the full retirement age and these employees do receive full benefits no matter the salary. Working past the age of 70, employees are entitled to will receive higher benefits when they retire.  If one chooses not to collect the retirement benefits before s/he reaches full retirement age, then s/he has to pay a higher premium when it is filed later (Barnhart A. 2005).

Due to the looming threat of collapse of the social security scheme, the Obama administration is considering to encourage workers to turn their savings into guaranteed equity when the stocks collapsed in the retirees account. The government plans to promote the conversion of 401(k) savings and individuals and the retirement account to annuities. This means that the retired employees will be guaranteed of their benefits from the plan until their death. Annuities are designed to protect retirees from the risk of outliving their savings especially when markets plunged earlier this year (Francis T. 2010).  This is a positive way to cushion retired workers thus they are guaranteed not to plan for their retirement as the government has already instituted plans for the same.

The view expressed by most economists is that the system will fail terribly when the government will have exhausted its funds by the year 2042. But on a closer look, we find that after the trust funds are exhausted the payroll tax revenue will still be able to pay benefits of about three quarters of the benefits in the current law. Statistics show that there will be still enough revenue to pay about two-thirds of the scheduled benefits. The average real benefits will be higher than it is today with the initial benefits indexed to earnings. This is a better plan than no benefits, meaning the retirees' fear of missing benefits are and will be taken good care of by the federal government. Also there are plans by congress to act before the funds are exhausted by providing additional revenue which will finance higher benefits than they are payable after 2042 otherwise this social security problem is smaller than that of Medicare and Medicaid. This is really possible with a projected increase from the current GDP of 4.4% to 7.0% in the year 2077 (Diamond P. 2003).

Last but not least, from the available data in 2001, a third of the elderly received at least 90% of their income from the social security scheme while two thirds of the remaining received at least 50%.  With adequate preparation and sufficient savings, it is possible to pay the retiree's their dues when they retire and leave them worry about different stuff about their retirement not with their saved earnings. According to a recent study, from the year 2037 to 2084 the payroll taxes will be enough to pay 75% of the projected benefits. So for those who think that they won't receive any benefits, these are great news (Diamond P. 2003).

Although the above points show that the social security will be able to pay for the retired elderly, it is not that easy as the system is facing huge financial problems. So the younger generation of workers need to be wary of their future after retire.       

Social security will not cover for the retirees'

From the above information we learn that the social security will be bankrupt by the year 2042 unless the right decisions are made. The big question that we will ask ourselves is; what if no remedies are taken reverse the current trend and even if remedies are taken what if they are not the best option, what will happen to the retirees?  Social security worked s well in the past because the economic burden of giving back benefits to fewer retirees covered by a relatively bigger working generation was achievable. Example in the year 1950, for each beneficial retiree of the scheme, s/he was supported by 16 workers implying revenues to the scheme exceeded the benefits given to the retirees. The ratio in 1960 of workers to beneficiaries was 5.1 to 1 but has decreased to 3.3 to 1 by 2005 and is expected to decrease further. This can be attributed to improved medical care which means that the elderly will live longer than in 1950s. This problem is further aggravated by the fact that the baby boomers have started retiring as from 2008 and the ratio is likely to fall to 2 to. This declining worker to beneficiary ratio has very disturbing financial consequences to the scheme. From the current trends, it means that social security cost will exceed the income by the year 2018. Factoring the securities interest into the system will mean that income will be exceeded by income tax in 2028 and finally 2043 the assets of various trust funds will be exhausted. This will mean that the system will be bankrupt and will not be able to pay retirees their benefits.  Clearly, this is not the kind of plan that the American employee will bank on as they retire (Schindel M.).

From above we find that only a third of the retirees received 90% of the benefits in 2001, while two thirds of the remaining received at least 50%, this data is from the year 2001 when the worker to beneficiary ratio was about 3.3 to 1. It now worries what percentage of retirees' will receive even the 50% of their benefits in the near future with the given statistics as the ratio declines. 

The hope from congress that they will do something to fix the situation is a far cry from reality on the ground. When will we trust our lives to the politicians? They will be there with suggestions but will take years to implement and maybe they will do it when the situation cannot be reversed.  The social security system is an intricate complex system that cannot be left to politicians alone who may resort to borrow to pay the retirees. Although the system is meant to help the people in need after retiring, with a growing number of those claiming that they are in need outweighing those who are paying taxes for the scheme, then the future of social security does not look like the place retirees should peg their hopes at.

During the recent economic recession, the retirees' account with their annuities lost millions of dollars. This account was meant to cushion the retirees'. This has eroded their confidence in the scheme and it seems that with the current state, the social security scheme is no viable. From a recent Gallup poll, it shows that most retirees expect their current benefits to be cut and a whopping 60% saying that they do not expect social security to pay them benefits when they leave working. This skepticism is highest (75%) with the younger workers between the ages of 18-34 who do not expect to get benefits from the scheme when they retire. This was especially because of the high unemployment and a record of companies that have closed business making most Americans lose faith in the fundamental part of their finances (Page S. 2010).   

Founded as part of a new deal in 1935, social security was meant to cover for retired members of our society. Though successful at first because of its fewer retires and a large number of working individuals who supported it through monthly deductions. But the situation has since changed as the number of retirees' increases and those individuals working decreases. With available statistics showing that if the current situation continues, the funds will be exhausted by the year 2042, this should worrying news to the working generation who expect to retire in the near future as with these statistics the scheme is not viable unless the right changes be made of course which are hard to come by from our politicians as the scheme is now complex and most Americans have lost hope in it.

With these trends, clearly the American worker should be very worried and should take the first steps to plan for their future retirement immediately they are employed rather than leaving their retire plans with social security and the federal government. In case of any benefits from social security, let them be like surplus income during retire.