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The United States Social Security Administration was created by the Social Security Act of 1935. This program was created as a part of President Franklin D. Roosevelt’s New Deal (Social Security Online, 2003). It was created during the Great Depression to combat poverty among the elderly specifically those sixty-five and older (Social Security Online, 2003). The plan was to take a small percentage of an employee’s paycheck and have that percentage matched by the employer. This money is put into a fund that in turn distributed among the current population of nonworking elderly that are sixty-five and older. However this system has now become flawed. The current population trends in the United States have lead to the Social Security Administration to become ineffective for future generations.
The United States Social Security Administration was created by the Social Security Act of 1935. This program was created as a part of President Franklin D. Roosevelt’s New Deal (Social Security Online, 2003). It was created during the Great Depression to combat poverty among the elderly specifically those sixty-five and older (Social Security Online, 2003). The plan was to take a small percentage of an employee’s paycheck and have that percentage matched by the employer. This money is put into a fund that in turn distributed among the current population of nonworking elderly that are sixty-five and older. However this system has now become flawed. The current population trends in the United States have lead to the Social Security Administration to become ineffective for future generations.3
“When Social Security was created there was about 40 workers paying Social Security taxes for every one retiree receiving benefits. Today, there are three workers for every retiree; soon, there will be two” (The Cato Institute, 2001, p. 5). Many theorists say that the Social Security will collapse in the future as well (The Cato Institute, 2001). These predictions are based on how the population of the U.S. has changed over time. When the Social Security program was first created the average life expectancy was at “61.7 years for both sexes” (National Vital Statistics Reports, 2004, p. 2). Currently the average life expectancy as of “2001 is 77.2 for both sexes” (National Vital Statistics Reports, 2004, p. 1). This is due to the incredible advance in technology, specifically medical technology and treatment in the past fifty years. Doctors have more knowledge about illnesses and how to treat them than they did in the great depression and people are now living longer because of it. Therefore because of the increase in the average life expectancy, the amount of people that draws from social security has increased throughout the decades.
“When Social Security was created there was about 40 workers paying Social Security taxes for every one retiree receiving benefits. Today, there are three workers for every retiree; soon, there will be two” (The Cato Institute, 2001, p. 5). Many theorists say that the Social Security will collapse in the future as well (The Cato Institute, 2001). These predictions are based on how the population of the U.S. has changed over time. When the Social Security program was first created the average life expectancy was at “61.7 years for both sexes” (National Vital Statistics Reports, 2004, p. 2). Currently the average life expectancy as of “2001 is 77.2 for both sexes” (National Vital Statistics Reports, 2004, p. 1). This is due to the incredible advance in technology, specifically medical technology and treatment in the past fifty years. Doctors have more knowledge about illnesses and how to treat them than they did in the great depression and people are now living longer because of it. Therefore because of the increase in the average life expectancy, the amount of people that draws from social security has increased throughout the decades.4
However the increase in the average life expectancy is only half of the problem. The Social Security system depends on active workers to support the elderly. If the amount of elderly increases then there is a need for the amount of active workers to increase in order to compensate for the strain on the Social Security fund. Yet this has not happened. The average American family size has slowly decreased over the years, but this is the biggest problem facing the Social Security system. The biggest problem is that the average amount of children per America family has been decreasing ever since the population surge in the 1950s (or better known as the Baby Boom). Thus as the amount of elderly has been increasing dramatically, the amount of active workers has not been increasing to match. This trend has lead to problems that the Social Security Administration now faces.
However the increase in the average life expectancy is only half of the problem. The Social Security system depends on active workers to support the elderly. If the amount of elderly increases then there is a need for the amount of active workers to increase in order to compensate for the strain on the Social Security fund. Yet this has not happened. The average American family size has slowly decreased over the years, but this is the biggest problem facing the Social Security system. The biggest problem is that the average amount of children per America family has been decreasing ever since the population surge in the 1950s (or better known as the Baby Boom). Thus as the amount of elderly has been increasing dramatically, the amount of active workers has not been increasing to match. This trend has lead to problems that the Social Security Administration now faces.5
An increase of people taking money from Social Security and a slight decrease in people contributing money to Social Security creates this problem. The Baby Boom was the population surge of soldiers coming home from World War II and settling down and having families. People born between 1946 and 1965 are characterized as Baby Boomers. These Baby Boomers are now beginning to reach retirement age. This means that the large amount of people born between those years will soon not be contributing to the social security fund but instead withdrawing from it. This will cause an even greater strain on the social security system. Not only are you taking away from the people contributing but you are adding to already growing amount of people withdrawing from the fund. This strain may lead to the bankruptcy of the social security administration and thus the inability of the social security administration to provide support for future generations when they reach the age of sixty five.
An increase of people taking money from Social Security and a slight decrease in people contributing money to Social Security creates this problem. The Baby Boom was the population surge of soldiers coming home from World War II and settling down and having families. People born between 1946 and 1965 are characterized as Baby Boomers. These Baby Boomers are now beginning to reach retirement age. This means that the large amount of people born between those years will soon not be contributing to the social security fund but instead withdrawing from it. This will cause an even greater strain on the social security system. Not only are you taking away from the people contributing but you are adding to already growing amount of people withdrawing from the fund. This strain may lead to the bankruptcy of the social security administration and thus the inability of the social security administration to provide support for future generations when they reach the age of sixty five.6
The current and future problems with the Social Security system have not gone unnoticed in Washington. There have been many proposed solutions some of them include: raising taxes to help pay, decreasing benefits in order to lower costs, or increase the retirement age in an attempt to decrease the overall current amount of people withdrawing from the fund (The Cato Institute, 2001). Yet the most popular and supported solution to the Social Security problem is to privatize part of the Social Security System (The Cato Institute, 2001). This solution received major support from the G. W. Bush administration and has been seriously considered (The Cato Institute, 2001). Under this Solution, people could pay part of their social security into a private fund that they would be able to draw from when they reach the retirement age (The Cato Institute, 2001). This would lead to future generations partly directly paying for their own retirement fund yet still paying in the government Social Security fund in order to give funds to those who contributed under the old system and thus current retirees and people near retirement would not be effected. This would take part of the responsibility out of the hands of the Government and into the hands of the people.
The current and future problems with the Social Security system have not gone unnoticed in Washington. There have been many proposed solutions some of them include: raising taxes to help pay, decreasing benefits in order to lower costs, or increase the retirement age in an attempt to decrease the overall current amount of people withdrawing from the fund (The Cato Institute, 2001). Yet the most popular and supported solution to the Social Security problem is to privatize part of the Social Security System (The Cato Institute, 2001). This solution received major support from the G. W. Bush administration and has been seriously considered (The Cato Institute, 2001). Under this Solution, people could pay part of their social security into a private fund that they would be able to draw from when they reach the retirement age (The Cato Institute, 2001). This would lead to future generations partly directly paying for their own retirement fund yet still paying in the government Social Security fund in order to give funds to those who contributed under the old system and thus current retirees and people near retirement would not be effected. This would take part of the responsibility out of the hands of the Government and into the hands of the people.7
However such a solution does have its dangers. Taking the money out of the hands of the Government and putting in the hands of the people means that the people would now be responsible for managing their own money for retirement even when their employer does approve and contribute their matching percent to these private funds. However privatization of retirement funds would also mean that the funds would be subject to the economy and with current recession and the behaviors of firms like AIG this also raises concerns about the security of the funds if they were privatized.
However such a solution does have its dangers. Taking the money out of the hands of the Government and putting in the hands of the people means that the people would now be responsible for managing their own money for retirement even when their employer does approve and contribute their matching percent to these private funds. However privatization of retirement funds would also mean that the funds would be subject to the economy and with current recession and the behaviors of firms like AIG this also raises concerns about the security of the funds if they were privatized.8
In the past people have contributed to the Social Security knowing that when they retired and reached the age of sixty-five they in turn would be able to withdraw from the fund they once contributed to. Current active workers do not have this assurance. With the increasing demand on Social Security due to increase in elderly and decrease of funds being put into Social Security, there might not be any funds left for when the current contributors reach the age of sixty-five. Therefore the current Social Security Administration is ineffective at providing support for the future elderly that are currently providing the life blood for the Social Security system today.
In the past people have contributed to the Social Security knowing that when they retired and reached the age of sixty-five they in turn would be able to withdraw from the fund they once contributed to. Current active workers do not have this assurance. With the increasing demand on Social Security due to increase in elderly and decrease of funds being put into Social Security, there might not be any funds left for when the current contributors reach the age of sixty-five. Therefore the current Social Security Administration is ineffective at providing support for the future elderly that are currently providing the life blood for the Social Security system today.