Question

You may have heard that Social Security is in danger of failing. Why? Is the sky falling? What might be done to correct the situation? Use some of the things that you have learned to come up with some ideas to fix Social Security.

Answer 1

On Aug. 14, 1935, U.S. President Franklin D. Roosevelt signed into law the Social Security Act. Originally implemented to assist older Americans by paying them a continuing income upon their retirement, the program was later amended to extend benefits to the spouse and minor children of retired workers, workers who become disabled, families in which a spouse or parent dies, and, more recently, health coverage.

The Social Security program is funded through the Federal Insurance Contributions Act (FICA) tax, a dedicated payroll tax. You and your employer each pay 6.2% of your wages, up to the taxable maximum of $137,700 for 2020.

If you are self employed you have to pay the full amount of 12.4%.

The money that you pay through taxes is not the same money you will receive later in life. Instead, Social Security is primarily a pay-as-you-go system, where the money you and your employer contribute now is used to fund payments to people who currently receive benefits, including those who have retired or are disabled, survivors of workers who have died, dependents, and other Social Security beneficiaries.

Issues:

Americans are having fewer children and living longer, both of which contribute to an aging population. Baby boomers (those born between 1946 and 1964) are retiring at a record pace. As of 2018, 16% of the population is age 65 and over, and by 2060 it is estimated that it will rise to 23%.

At the same time, the working-age population will be getting smaller, from about 62% today to 57% in 2060.

These trends result in declining worker-to-beneficiary ratios. As we move forward, there will be fewer people putting money into the Social Security system and more people taking money out. Because of these factors, the Social Security Administration estimates in its 2020 Annual Report that all the money in the Social Security “bank account” will be exhausted in 2035, when it will have only about 79% of what it should pay out that year.

That means that without any changes to the system, if you’re in your 40s or 50s today, you could conceivably not receive your full Social Security benefits during retirement, even though you’re paying into the system now.

What is the possible solution???

1.Increased tax

2.Benefit cuts

3.Increase age limit for earning Benefits