Question

Why is Social Security expected to have financial difficulties in the coming decades?

Answer 1

Social security is funded within come from four sources:-

1) Payroll taxes

2) Net interest income earned by asset of the Trust ( U.S. Treasuries)

3) Taxes assessed on Social Security benefits

4) Reimbursements from the General Fund .

Social security is primary funded by payroll taxes assistant on wages in the United States. The employer paste 6.2 % of income and the employees chips and another 6.2 %. The self employed being both employer and employee pay 12.4% of the income to the program.

As per the law, the funds invested in special issue treasury securities that on interest. In effect, the funds are known to the treasury, which borrows the money just as it borrows money when it sells treasury securities to the public. In return for the funds they alone to the government, the trust funds received treasury securities wearing a market rate of interest. The average interest rate on the portfolio held by the social security trust fund was 3.2% in 2016.

Some of the the important changes that have been made from the Inception till date are as follows:-

1) initially social security was introduced as a purpose to provide retired workers with some form of continuous income however now it benefits more people which includes spouses and minor children of the retired and deceased workers to receive general benefits as well as Medicare.

2) the full retirement age has been pushed back .

3) the average current social security enrolled benefits have increased

4) cost of living adjustments have been implemented.

5) the whole process of enrolling and paperwork has became electronic.

6). The rule book of social security has grown exponentially.

A slow moving crisis is approaching for social security threatening to underminer Central Pera in the retirement of 10 of millions of Americans point unless a political solution is reached the social security trust funds are expected to be depleted within about 15 years point roughly 10,000 baby boomers a retiring each day with insufficient numbers of young people entering the workforce to pay into the system and support them. And life expectancy is increasing. Therefore by 2035 social security estimate the number of American 65 or holder will increase to more than 79 million from 49 million that is the currents numbers and if the program is not repaired they will encounter a much water social security than today

The idea of privatization of social security is that instead of the Federal government being responsible for your entire retirement payout, once you decide to claim your benefit a portion of your benefit will be set aside in a separate account that you would control. The thought process being that if you could control your own retirement benefits you might be able to grow the matter quicker pace over the long-term then the Federal government has.

PROS :-

1) it will offer the ability to invest the retirement benefits as the person may deem fit

2) the privatisation could turn out to be a long-term positive for the u.s. economy. As million covered workers will now I invest in the stock market and search and incredible in fusion could lead to Mammoth Bull run and stocks which creates a stronger economy wire job creation higher wages.

3) the privatization would help to reduce the red tape by placing Americans in control of their own funds and to reduce government Responsibility in providing a financial foundation for retired workers.

CONS :-

1) as many Americans have no little financial knowledge they could lose money through privatization putting low and middle-income individuals are families in even was shape .

2) privatisation social security code create a big dead headache for the Federal government.

3) It does not resolve the underlying issues of the social security program where the worker to beneficiary ratio is falling.

Sources :-

1) ssa.gov/policy/April 2019

2) nasi.org/ learn/social security/ where-taxes-go

3) fool.com / ways social security has changed over time

4) nytimes.com/ social security shortfall 2020

5)fool.com/ pros and cons of privatisation social security