Social Security Tax System Revamping Our Future Social Security Tax System This paper will discuss the current United States Social Security Tax system, the purpose of that system and our goal for selecting this topic. Also, it will explain our analysis of it’s current standing, different idea’s about what to change in our current standing to secure and guarantee a strong future for it. We will conclude by recommending the best course to accomplish this goal. Contents Abstract 2 Contents 3 Title 4 Current U.S.A. Social Security Tax System 4 Low Risk Investment 7 High Risk Investment 8 Graph: Social Security Tax Increases 9 Conclusion/Recommendations 11 References 12 Revamping Our Social Security Tax System to Secure its future Current U.S.A.
Social Security Tax System Social Security has been around for more than 60 years. It has been an important part of American life. It was created in 1935 shortly after the great depression. Social Security was created to be a protection for the American people against the hazards of unemployment, old age, and ill health. Today Social Security not only provides minimum protection for the retired worker, it also provides benefits for workers and their families due to death of a family wage earner or loss of income due to disability.
Today there are about 150 million workers who are protected by social security, more than 44 million receive retirement, survivors and disability benefits form social security. American wage earners and their families are protected by social security and they pay taxes to help make the system work. There are two philosophies Social Security bases its payments on. First, the system is designed so that there is a link between how much a wage earner pays into the system and how much he or she will receive in benefits. For example, a high wage earner will receive more benefits while a low wage earner will receive less.
Second, a base for economic security is provided by the Social Security system. Social Security provides a valuable package of retirement, disability and survivors insurance, which relieves families of financial burdens from supporting other family members. Social Security has made an enormous difference in the lives of older Americans. American workers can retire as early as age 62. At this age, wage earners are eligible to get reduced benefits from Social Security.
Wage earners may wait for full retirement age to be eligible for full retirement benefits. Currently, full retirement age is 65, but will be moved up gradually starting in 2003. The new retirement age will be 67 for people born in 1960 or later. Social benefits payments are paid out to more than 9 in 10 retirees. In America, only 11 percent of senior citizens live in poverty. Without Social Security benefits, the percentage of seniors living in poverty would be much higher.
Social Security is the major source of income for about two-thirds of elderly Americans, and for abut a third Social Security is virtually their only source of income. Retired Americans are given a dependable monthly income from Social Security. Automatic increases are tied to increases in the cost of living. Social Security gives retired American citizens a measure of deserved financial independence (and that measure is becoming lower every year). Social Security is more than a retirement program.
It is also a protection plan for American citizens. Valuable disability and survivors’ insurance protection are given to younger wage earners and their families. There are about 1 in 3 workers who are Social Security beneficiaries that are not retired. Monthly survivors’ benefits are given to about 7.5 million people and more than 6 million workers and family members receive disability benefits. Social Security provides a foundation on which to build retirement security. Social Security, pensions and savings is a three-legged financial stool for a comfortable retirement. Unfortunately, there is only a little more than half of all workers whose employers have pension plans; and people are not saving for their future retirement.
Pre-retirement earnings for the average worker are about 40 percent, provided by Social Security. Financial advisors say that the average worker will need 70 percent of pre- retirement earnings to live comfortably. Saving is an important part of retirement planning. Social Security will begin mailing statements to workers age 25 and older. The statement will show a worker’s earnings history, as well as giving estimates of retirement, survivors and disability benefits.
This statement will help with future financial planning. Demographics have been the main reason for Social Security’s long-range financing problem. People, today, are living longer and healthier lives. In 1935, when Social Security was created, a 65-year-old person’s average life expectancy was 12 1/2 more years. Today, it is about 17 1/2 years and raising. And to add to this, at about 2010, 76 million baby boomers will be retiring.
There will be nearly twice as many older Americans as there is today in about 30 years. And at the same time, the number of wage earners paying Social Security taxes, per beneficiary, will drop form 3.3 to 2. America’s retirement system will be strained caused by these changes. “Social Security is an economic compact among generations. Many people think that their Social Security tax contributions are held in interest-bearing accounts earmarked for their own future retirement needs.
Social Security is actually an intergenerational compact – the Social Security taxes paid by today’s workers and their employers go mostly to fund benefit payments for toady’s retirees. Social Security is now taking in more in taxes than is paid out in benefits and the excess funds are credited to Social Security’s trust funds. There is now about $850 billion in the trust funds, and they are projected to grow to more than $4 trillion in the next 20 years. But benefit payments will begin to exceed taxes paid in 2014, and the trust funds will be exhausted in 2034 when it will be able to pay only 75 percent of beneficiaries. At that time Social Security will be able to pay only about three-fourths of benefits owed..
if no changes are made (The Future of Social Security, 1999).” Today Social Security is not in a crisis, but America must make changes to strengthen Social Security. Changes must be made in order to keep Social Security strong in the 21st Century to ensure economic security for future generations and retirees. As President Clinton stated, “we must educate Americans about Social Security and the issues that face it. Americans must understand the Social Security program of today, so they can make informed choices about the Social Security program of tomorrow.” Low Risk Investment Since the financial support from Social Security will be negative in 2014 and exhau …