Shamed by scenes of the elderly living in abject poverty following the Great Depression, Congress passed the Social Security Act which was signed into law by President Franklin Roosevelt on August 14, 1935. At the time, poverty rates among senior citizens exceeded 50 percent.
Since that time, millions of Americans confronted by old age, poverty, disability and unemployment have benefited from the act.
Although Republicans, and more recently, the media have labeled Social Security with the perjorative term entitlement it is simply a form of insurance defined by actuaries as a government-sponsored insurance program funded by premiums paid by or on behalf of participants. Indeed, the FICA withholding you see on your paycheck stands for Federal Insurance Contributions Act. These contributions represent less than six percent of an individuals annual income up to $106,000 per year. Any income above $106,000 is exempt from withdrawals.
Fact is, Republicans have been opposed to Social Security from the beginning, claiming that it would cause a loss of jobs. Obviously it didnt. And the new deficit crisis has provided Republicans with arguments to dramatically change or end the program now. Many want to replace it with individual investment accounts, feeling that they could better ensure their retirement by investing their FICA withdrawals themselves. First, the benefit payments from an insurance program like Social Security should never be compared to the returns on investment accounts. Moreover, replacing Social Security with individual investment accounts could be disastrous for many seniors in the event of another economic depression or a repeat of the Great Recession of 2008. If the stock markets plummeted, the retirement incomes of most seniors would crash with them.
So how about the solvency of Social Security? Currently, the program has a $2.5 trillion surplus. Remarkably, administrative costs of the program account for less than one percent of its total. However, due to the impending retirement of Baby Boomers, it is estimated that the program will not be able to make full benefit payments in 25 or 30 years. But the program is not broke. Indeed, it can be fixed with relatively minor tweaking. One option is to raise the cap on income as the Reagan Administration did in the 1980s. Removing the cap altogether would definitely solve the problem as would limiting benefits to only those who actually need them those retirees with annual household incomes of less than $50,000, for example.
Contrary to those who want to end the entitlements, the facts show that dramatically changing Social Security or ending the program entirely could be devastating for our nation. The majority of beneficiaries have little significant income from other sources since options such as employer-provided pension plans are virtually non-existant today. Additionally, the benefits from our Social Security program already lag behind most other advanced countries. The Organisation for Economic Cooperation and Development (OECD) ranks the U.S. 26th out of 30 OECD nations. On average, OECD nations replace 61 percent of a retirees earnings with pension plans. In the U.S., the number is roughly 40 percent.