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Proposals to change Social Security Benefits During many elections, we have
heard proposals from politicians to alter or change Social Security benefits. In
this paper, I’m going to research and analyze these proposals to find out
whether or not they would be beneficial to the Social Security fund, how it will
affect all of us in the future, and the current beneficiaries who receive Social
Security.social websites
“The key problem for Social Security is that, as the population
ages, soon there will not be enough people paying Social Security taxes to
provide benefits for every retired person. ” (Dilulio & Wilson 486). This is
why so many politicians have proposed changes to the current system. The people
in my generation might not see any benefits when it’s our time to retire. “In
1950, there were 16 workers to support every one beneficiary of Social Security;
today, there are only 3. 3 workers supporting every Social Security beneficiary.
” (White House). If Social Security stays unchanged at this rate, Social
Security will be paying out more than it takes in. If we ever reach this stage
we will be left with two problems, a lot of people paying into the system now
will be cut off of Social Security, or the government will borrow more money to
pay the beneficiaries, which will increase the national debt.
“Unless
otherwise stated, payment levels apply equally to aged, blind, and disabled
persons. ” (State assistance programs for SSI recipients, 3) I believe that if
the Social Security fund only funded beneficiaries who are aged, we would not
have such a low number today of 3. 3 workers supporting every Social Security
beneficiary. “The Budget Enforcement Act, for example, excluded the receipts and
disbursements of Social Security from the President’s budget and the
congressional budget resolution. Programs that have been excluded like this are
called “off-budget”. ” (Collender 12)
Robert M. Ball has proposed a plan
to alter Social Security while arguing against President Bush’s proposal of
private accounts. One thing that Ball has proposed was, “Gradually raise the cap
on earnings covered by Social Security so that once again 90 percent of all such
earnings would be taxed and counted for benefits” (Ball 2). I believe the means
of using tax to fix Social Security will work in the short run, but not in the
long. If we do take this approach, should we gradually raise the cap on earnings
covered by Social Security even more in the future when Social Security has gone
further into debt? Another proposed change by Ball was, “An estate tax is a
highly progressive way of meeting this cost, and dedicating it to Social
Security would strengthen the contributory. ” (Ball 3) Now an estate tax, or
sometimes called a “death tax”, is a tax on a person’s estate depending on how
much he or she was worth. Again, I see a problem with this proposal because Ball
is suggesting that we use another means of tax to be paid into Social Security.
I personally think it’s wrong to even have an estate tax because those who are
taxed an estate tax were most likely small business owners. “More than 70% of
family businesses do not survive the second generation; 87% do not make it to
the third generation. ” (Frequently asked questions about the "Death
Tax")
During the 2000 elections, President Bush was widely known for his
proposals to privatize Social Security. Most of the Democrat’s are against
Bush’s proposals to change Social Security, whereas, most Republican’s are for
Bush’s proposals to change Social Security. In order to find out whether people
would be better off under the current Social Security system or a privatized
system, I researched the average returns among the current system and compared
them to the average returns under a private investment or “private
account”.
Barbara Boxer published a “Social Security to Social Insecurity
calculator” (Boxer), that calculates the average return an individual will
receive under the current system compared to Bush’s privatization plan. I
entered many different salaries and years and at every given circumstance,
Bush’s plan resulted in a loss. I found this very disturbing considering the
large amounts of research I have done last year on retirement
accounts.social sites
Dave Ramsey published a ”Privatizing Social Security
calculator” (Ramsey), that calculates the return you could expect depending on
the type of fund you choose, your income, and your age. Compared to Barbara
Boxer’s calculator, I found this calculator more accurate because you were able
to choose a fund that had an average annual return, which is calculated into how
much you contribute over a given amount of years. The result from Dave Ramsey’s
calculator shows how much you will receive from social security and your private
accounts when you retire which resulted in a much higher return than social
security.
Last year I took an economics class, which covered a great deal
in investing for retirement. Some people who are against Bush’s plan of private
accounts state that privatizing social security is too risky for retirement.
“For individual investors who have neither the time nor the inclusion to
actively monitor a stock or a bong portfolio, mutual funds have an obvious
appeal. Just pick a good fund and let the managers do the work for you. ” (Groz
105). At the age of 19, I visited Fidelity Investments in Braintree,
Massachusetts where I was able to start my own investment portfolio. They showed
me many funds that ranged from aggressive growth to conservative growth funds. I
then chose a couple of mutual funds that were aggressive growth because I was
starting my investing at such a young age. “Many investors draw the inference
that they should not invest all their money in a single stock or bond, but
rather spread out their investments among a group of securities. ” (Groz 106).
If private accounts were an option, I would recommend people to diversify their
investments into many different funds just to limit risk.
Another benefit
from investing in certain types of stocks is the dividends. “Dividends, then,
are a dividing up and distribution to shareholders of a portion of the
corporation’s earnings. ” (Groz 27). With these dividends, you can reinvest them
into the stock or fund; “Compounding occurs when you get many (e. g., interest
or dividends) from an investment and put it back into the portfolio, letting it
grow alongside the original investment. ” (Groz 183).
After doing
researching and analyzing the proposals offered by many politicians, I feel that
privatizing Social Security is not such a bad idea. I feel that privatizing
Social Security would give people more control of their money when it comes to
saving money for retirement that the government cannot touch. I understand that
some people might fear the risks of investing in the stock market, but if
someone diversifies and chooses funds that are somewhat conservative, there is a
very small risk of having little return. Considering that Social Security today
has very little return “Social Security's inflation-adjusted rate of return is
only 1. 23 percent for an average household of two 30-year-old earners with
children in which each parent made just under $26, 000 in 1996. ” (Beach), you
would be better off putting your money into a savings account earning a return
close to 3 percent.
“If someone's definition of national debt excludes
the debt owed to federal entities, they are not accounting for the interest on
the debt owed to federal entities. ” (Ruoco).
[http://www.publicdebt.treas.gov/opd/opdhisto4.htm]), why should I trust the
government with my retirement money? This is why I support the idea of
privatizing Social Security, or at least giving the American people the option
to invest in private accounts.
Sources
Orr, Doug. "Social Security
Q & A: separating fact from fiction." Dollars & Sense 259 (May-June
2005): 15(6).
State assistance programs for SSI recipients. Baltimore,
Md. : The Branch, 2002 Jan
Ball, Robert P (2005). “Fixing Social
Security” The Century Foundation. 5/3/2005
Beach, William W., Gareth E.
Davis. "Social Security's Rate of Return." The Heritage Foundation. 15 Jan 1998.
25 Nov. 2005 .
Bogle, John C. Common Sense on Mutual Funds : New
Imperatives for the Intelligent Investor . San Francisco: John Wiley,
1999.
Boxer, Barbara. "Social Security into Social Insecurity." Social
Insecurity. 25 Nov. 2005.social websites
Brohawn, Dawn K., Norman G. Kurland, and
Michael D. Greaney. Capital Homesteading for Every Citizen: A Just Free Market
Solution for Saving Social Security. : Center for Economic and Social Justice,
2004. (Brohawn et al. 256)
Collender, Stanley E. The Guide to the
Federal Budget : Fiscal 2000. New York: Century Foundation Press,
1999.
"Frequently Asked Questions about the "Death Tax"." DeathTax. 29
Mar 2001. The Seattle Times. 25 Nov. 2005
Groz, Marc M. Forbes Guide to
the Markets : Becoming a Savvy Investor. New York: J. Wiley,
1999.
Hubbard, Glenn. "Happy 70th, Social Security." Business Week August
08 2005..
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