Introduction
The Social Security System (SSS) consists of OASI for the aged and DI which covers the disabled. Retired workers and their family are paid monthly benefits under OASI, while DI caters for disabled people who have not achieved retirement period and their families. The system is continuous through payroll taxes paid equally by both managers and the workforce, while those in self-employment roughly pay the full amount. (The Concord Coalition).
Changes proposed in eligibility determination and benefit calculations for specific programs
The requirements of eligibility depend on who is filing the claim, whether it is a dependant, survivor or an existing worker. However, the basic requirement is that a person must have served or is serving in covered employment for a significant period before retiring, being disabled or dying (Berman & Matthews).
Research on the effects of social security on the market and the economy entails several links and restrained relations. Political influence is inevitable in decision making on whether the program should be privatized or not (Shaviro 1-10). The SSS is doing better than other federal governments which are running deficits, making further profits than it is paying in benefits. Despite the benefits, the program faces challenges like future deficits thus calling for necessary changes to be made in order to ensure the country’s future. Social security (SS) funds are likely to fall short of benefits costs in the future (Lavery & Reno). Future projections indicate that revenue may be less than benefit payments. If this happens, revenues will have to be raised, and benefits be lowered so that the system may be balanced. Several changes must be done to eliminate this predicted outcome.
Having knowledge on the SS benefit calculation is crucial to understand how benefits are calculated in order to compose ideas which will help in proposing a better SSS. The Liebman-MacGuineas-Samwick (LMS) plan will act as a guideline in presenting my proposals and explaining eligibility determination and calculation of benefits of precise agenda. Benefit cuts can be done through progressive reductions in the primary insurance amount (PIA). PIA is the retirement benefit that one receives at complete age of retirement (Thomas). Premature retirement means a reduced segment of PIA on the total repayment.
The calculation covers an individual’s complete earnings past against adjustments in inflation and chooses 35 of the best years. This information is used to find the standard indexed monthly earnings for the years. A formula is then applied that standardizes at roughly 30% of the inflation-adjusted average (Thomas). Investments income is not calculated as earnings in the computation of SSS. Net earnings from personal employment and salaries represent earnings in SSS.
The table of increased adjustments changes annually due to inflation. The year of keying is around sixty even if the acceptance of settlement is launched later. The inflation-adjusted amounts are then included and the outcome divided by the summation of months, providing the AIME. However, the calculation uses fewer months for individuals who die or face disability before 62 years of age. If a workforce member retires at full retirement, and is a low-income earner, then a SS benefit that replaces approximately 50% of the salaries on the basis of inflation adjustment (Thomas). However, paychecks exceeding the SS salary base are not pertinent in the application of the formula. SS benefit would replace a smaller percentage of income when it is high.
Specific Changes Proposed
The plan emphasizes on cutting benefits, devising new methods to generate revenue and having individual retirement accounts (Liebman, MacGuineas & Samwick 1). Benefit cuts can be put into effect through progressive reductions in PIA influences and pushing the retirement age forward. New revenue can be generated through enforcing compulsory, additional contribution into private retirement accounts. There will be a decrease in benefits for low-salary employees and a decrease in spousal benefits.
Determining who benefits from any government program is indispensable. However, there are those involved in eligibility determination thus the need for alteration in the hierarchical processes followed. The assessment of clients and politics play a role in determining the eligibility of an individual. My proposal entails having privately owned accounts and clearly defining eligible children in SSS.
Around 10% of American children receive part of their family income from the SSS (Lavery and Reno). These benefits have extensively improved the poor lives of many kids. The benefits of children are specifically tied to those that their operational parents earn. A reduction or cut in benefits of parents thus means that the insurance protection of children would be cut. Specifically exempting children from the benefits would help ease this pressure, but they will still feel the brunt in their family.
Functions of SSS
SS earns income for many American children usually up to high school. They receive SS benefits incase of the death or disability of a working parent, or after retirement. Those who benefit are likely to be from black families, especially whose parents work in blue-collar jobs (Lavery and Reno). SS is the principal source of life insurance for households with children. More than 90% of careers in the states are covered with SS including the military and administration divisions. However, there is a significant rate of dying or becoming disabled before retiring in the global world.
SS provides children and some spouses of soldiers who have died in service with benefits. It is noted that the higher the salary one collects, the superior the benefits. Concurrently, the benefits formula is progressive in order for benefits to reinstate a higher fraction of past earnings. This in general signifies fewer benefits for some scholars because of the less benefits accrued.
The number of children in the family will obviously stretch the benefits that they are supposed to enjoy. The more the people entitled to the benefits, the less the impact of the benefits. This would put pressure on the eventual amount which is meant for retirement benefits. The definition of the child-parent relationship must thus be further defined to clearly explain who exactly is an eligible child (Lavery and Reno).
The reforms do not necessarily necessitate a new program, and in my proposal, I would like to suggest the inception and removal of some factors which may affect the future. There is the need to restore balance to the program without compromising common revenues. The program’s basic structure can be preserved, and the social insurance functions be strengthened (Shaviro 5-8). A balanced approach will only be achieved if the program combines revenue and modifications of benefits. The best way of securing a comfortable future is through opening personal accounts, which will allow workers to store and invest their social security levies in private.
Transition from the Current System to the Proposal
The plan reduces benefits so that they can be covered with the present payroll tax, representing approximately 30% reduction in aggregate spending relative to the present formulas. They will be implemented by changing the PIA formula and pushing up the complete benefit age (Liebman, MacGuineas & Samwick 3). The percentage of benefits reduction will be much higher for high-income earners than for middle-income earners. The upper and middle PIA factors are halved while the lower PIA is reduced by one quarter. The reduction on the top PIA aspect will factor in beneficiaries since 2008 to 2045 while the middle and lower aspects would be phased in the 2013-2050 period. The rate of change of the implementation of the reductions will be the same with that of the accumulation of balances.
The PAYGO system heavily relies on the ratio of the present workers against that of the retirees. The ratio of those paying in verses those receiving money is exceedingly sensitive. The increase in rate of tax has not been planned, but there are campaigns to introduce in social security parts of the income taxes that recipients receive on their proceeds. The annual surplus, which the program makes, is invested to accumulate interest which goes to the trust funds. In effect, these funds are loaned to other sections of the administration. By law, the treasury can retrieve this amount when needed to pay benefits in the future.
The transition from the present system to my proposed program involves the workers being in control of their accumulating savings. The new system would require the government to reduce its existing spending. A 40% increase in the government spending has been experienced in recent years. Cutting down on spending on other sectors is beneficial to guarantee comfortable retirement of the future generations.
Evidence to support claims about both the nature of the problem and the proposed solution
SSS is the largest federal program in the nation with a yearly budget of over of over $600 billion. At this time of global recession, social analysis is one of the leading topics which may affect the operations in the social order. Therefore, the desire to improve social protection will call for greater and deeper scrutiny. It has usually been a chief consideration before making any retirement resolutions. The importance of security for the work of younger employees cannot be ignored. Taxes on their salaries reduce the amount they take home. Workers perceive social security in the different ways that their current earnings will increase the potential retirement settlement (Diamond 1). It is projected that in future the scheme would not be able to pay the youth the benefits that have been promised. The present young workers are paying higher payroll taxes to the promised benefits. The threat of raising levies and cutting benefits will make the program worse (crane 1).
SSS has proven to be valuable in helping to reduce poverty in America to less than 10%. It spreads the cost of providing basic retirement among the workforce in America. This increases stability to the economy by guarding beneficiaries against catastrophes in the economy which would lead to reduced consumer spending.
Identification of the Problem
The major problem SSS has is the effect it has on the savings that the workforce would like to make in order to provide for retirement. The government’s contribution to nation savings is also a victim of the impact of social security on the administration’s economies. It is a system that is not wholly financed, thus the risk on future generations more than the current workforce. The future generations benefits are thus not assured.
The debate pitting politicians and academicians is always evident in any democratic system (Diamond 3). Policy analysts usually take sides, some with the academicians while others take the politicians side. The connection between reform proposals and politics has usually influenced many decisions related to social security. There are alternative reforms made before drafting a final version, and its results depend on the reaction of forecasters and politicians.
An aging population usually puts pressure on social security systems especially those which have substantial funding. This irregular aging of the population thus calls for long-term reforms to address the demographic tension. Low mortality rates and an increase in the number of children calls for the formulation of reforms (Diamond 4-5). How the retirement challenges of the huge number of children would be managed presents problems. Early retirement has always been favored by developed nations, but gender issues in retirement have always been different. The labor field of women may tend to one with different roles from men; hence there are no specifications on when they get their benefits.
Increasing funding for social security organizations has been debated in the society for ages (Diamond 4). Several questions abound; for example, how much the increase would be, and over how long it would take to implement. Whether the national budget would be subsidized to increase social security funding or whether the budget would be increased to cater for this requires colossal contemplations. Another issue of concern is the comparison of the defined contribution accounts against the defined benefits account. The major dispute between the two is their impact on the country’s politics. The retirement age raised in the 1980’s resulted in a cut in benefits. Levies can also be raised in the SSS without any increase in the retirement benefits.
Comparisons with the Personal Acounts System
The personal accounts system has several advantages over the current system. In the existing program, money being made by the present workers is used as the benefits for the current retirees. The pay-as-you-go method is simply a transfer of currency from the youthful population to the old retirees (Crane 4-5). This is in contrast to the proposed private accounts structure where the employees save in their own distinctive accounts. The money in the account thus increases in value through asset growth and interests.
In the present scheme, the government will pay the retirees using money collected from the taxes of junior workers, while in the proposed program an individual will use the savings and investments they have accumulated over the working period. The proposed system ensures that there are no governmental decisions which might influence the money being saved. The present security system is however faced by several administrative and political decisions, and how the accumulated money is spent depends on their manipulation. The money technically belongs to the government, the court having ruled that one has no right to the benefits (Feldstein 216).
If a worker dies prematurely in the SSS, the money has been paid through levies goes to the government. This typically deprives the deceased family the hard-earned money that should otherwise be diverted to them (Crane 4). A premature death results in the money in the account being given to the family, just like other family asset.
Conclusion
Social security has traditionally proven the desire of the government to improve the lives of the populace. The protected and relaxed retirement of future generations will vastly rely on how new reforms are incorporated into the current scheme. If the changes are not made, our children will certainly be burdened by pointless levies and debts. Necessary revisions in the reforms will ensure that the new program achieves real security after retirement. A retirement benefit program that will incorporate effective and more profitable use of money will only be achieved through indispensable reforms (Kollman & Nuschler). Everybody seems to be having a plan to rescue the situation; thus the best suggested solution should be used. However, having a system which ensures that the worker has control of the accumulating amount will significantly prevent the future insecurities. Spreading the costs which will be incurred by one generation to several generations will reduce the burden and the impact that would be faced (Liebman, MacGuineas & Samwick 1).
Works cited
Berman, Matthews & Matthews, Joseph. Social security, Medicare & government pensions. Get the most out of your retirement & medical benefits. California: Nolo, 2010. pp 16.
Crane, Ed. It’s your money: a citizen’s guide to social security reform. Cato institute 2005. Web.
Diamond, Peter. Social security reform. Oxford: Oxford University Press 2002. pp 1-5.
Diamond, Peter & Orszag Peter. Reforming social security: a balanced plan. Brookings 2010. Web.
Feldstein, Martin. Privatizing social security. Chicago: University of Chicago Press, 2000. pp 215-218.
Kollman, Geoffrey & Nuschler Dawn. Social security reform. Almanac of policy issues, 2002. Web.
Lavery, Joni & Reno, Virginia. Children’s stake in social security. National academy of social security. 2008. Web.
Liebman, Jeffrey, MacGuineas, Maya & Samwick Andrew. Nonpartisan social security reform plan. 2005. Web.
Shaviro, Daniel. Making sense of social security reform. Chicago: university of Chicago Press, 2001. pp 1-15.
Thomas, Kaye. Social security: Understanding the social security benefit calculation. Tax guide for investors. Web.