Question

Share your thoughts on the current state of the Social Security system. What would your recommendation be to the President about how to resolve the challenges we are facing with Social Security?

Answer 1

The current state of the Social Security system:

It shall be noted that the social security system is designed in such a way that it helps the old aged & retired citizens to live their remaining life with dignity. On referring to the Greenspan commission report, the accumulation of funds in the social security trust fund is increasing every year. The trust fund showed surplus by end of Year 2017. However, there are risk that this fund would be depleted at a much faster rate due to changing demographics such as higher rate of retirement of baby boomer generations, increased longevity due to advancements in medical science & medical technology, increasing societal income inequality, extended period of monetary easing policy and less than effective governance to tackle risk to social security system.

There are issues reported due to falling worker-to-beneficiary ratio from 4 in Year 2000 to level of 2.8 worker per retiree in 2017 and is expected to further fall to 2.2 by 2035

It shall be noted that payroll tax contributes 87% of social security funds. Due to falling workers to retiree ratio, there is a risk that social security funds accumulation would not keep pace with its rate of depletion.

USA is witnessing 10000 baby boomers retiring every day on average. On longevity side, people are expected to live for next 20 years beyond the age of 65 Years. This would mean, the retirees would keep receiving social security payments for extended period of time. Due to rising income equality, wealthier retirees could draw more social security payments and that too for extended period of time. Monetary easing did not help social security funds to grow at the faster rate due to low bond yields.

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The President of USA is expected to act tirelessly to eliminate the risks that is looming over the social security system due to issues stated above. Followings are the possible recommendations for considerations:

1) Policy should be framed to focus on people from Millennials and Gen X to diversify investments in tax-advantaged investment vehicle and reduce dependence on social security post retirement

2) The President should advise Federal reserves to restrict the effect of monetary easing on bond yields

3) The President should make the taxation policy increasingly progressive so that wealthier are taxed at much higher rate than relatively less fortunate.

4) The President should gradually increase the full retirement age to 68 to 70 years, given increasing longevity

5) The President should pass a rule that calls for review of the amount drawn as a part of social security payments once every five years as retirees remain alive in multiple of 5 years term post retirement.