Saturday, July 23, 2011

The Pulse: Fixing Social Security

What is Social Security’s purpose?
  • Provide a safety net for the elderly and poor
  • Started in 1935 by FDR during the great depression
  • Now provides disability and unemployment benefits
  • Intended to help people in retirement, not be their sole funding for retirement
What are the problems with Social Security?
  • It will go bankrupt if not reformed
  • Recipients making it their sole form of retirement
  • When started it provided full benefits at age 65, now they provide fill benefits at age 67
  • When started, Life expectancy was 62, today it is 78
  • The program does not allow enough productive years to fund retired years
  • There are too many baby boomers and too few workers to fund the program in the future
  • The program was never indexed to life expectancy
  • People will keep on living longer as technology advances requiring retirement ages to rise as well.
These are the solutions to Social Security’s problems
  • Move the full retirement age to 71, where it would be today if it had been originally indexed to life expectancy
  • Index the system to life expectancy the way it should have been from the start of the program
  • As people age, move them into mentoring, counseling, managerial roles for easier working years as they age to not lose their knowledge and expertise.
If you would like to contribute your own posts to this blog you can contact me at I am open to creative ideas and welcome them.

Fixing Social Security

         Social Security was started in 1935 by Franklin Delano Roosevelt when America was still reeling from the great depression. The program itself has kept millions of elderly citizens from living in poverty at a time when they are unable to earn money that would pull them out of poverty. Today though, Social Security needs to be fixed, or it won't be in place for our future generations. As a country we need to understand what Social Security's original purpose was, understand the problems, and come up with the solutions to fix it.

         Social Security never was intended to fund a persons full retirement. It was there as a safety net to ensure older Americans would not starve or become homeless in old age. However, as the years have gone on, more and more people use the program as their sole form of income in retirement. The government never intended the program to be used in this way. Over the years the government has added provisions to Social Security; providing disability, unemployment, and benefits for needy families. All of these additions have gradually added strain to the program and led us to the point that we now will have funding issues in the future.

         There are many reasons why Social Security needs to be reformed for it to survive, However opponents of any reform to the system argue that it has run a surplus for the entire length of the program. While this is correct, their points apply only to the program in the past, and will no longer apply in the future. When the program was enacted, life expectancy was 62 years of age in 1935, and the age to receive full benefits was 65. At that time the program supported a small number of people for a small amount of time. You had people working 40 years and paying into a system that provided benefits for only the final few years of life. Today the picture is far different, Congress has since raised the retirement age to 67 for those born after 1960, but life expectancy has risen to 78 years old. The average American is working only 2 years longer, yet living an extra 16 years. That extra cost falls upon the workers who are supporting the retirees. In productivity terms people are working 5% longer in life, yet expecting 25% more benefits, something in the long run has to give. This is the same problem that state pension programs are having going bankrupt all over the country.

           Another issue that is presenting itself is the baby boom generation. The reason Social Security was in a surplus for so many years was because our population was young. We had a very large working age population and a relatively small elderly population. We were able to collect all those extra taxes , pay our retirees, and have plenty left over. In 1950 there were 6 workers for every retiree, In 2010 there were 3 workers for every retiree, and in 2025 there will only be 2 workers for every retiree. The reason for this shift is that the generation after the baby boom is far smaller. A major policy change and a medical advancement are the reasons for the generation being far smaller. In 1973 abortion rights were passed allowing for legal abortions to be performed, as well in 1960 the birth control pill was introduced. Those two events are not only directly responsible for the problems we will face with Social Security, but with the problems in state pensions and Medicare as well. For the next 30 years we won't have enough workers to fund our retirees. There are solutions however, but the average person doesn't want to hear what needs to be done.

          First of all, we would have never been in this position had the government written a life expectancy clause into the program. Currently Congress is adjusting the age for social security to 67 gradually. What congress first needs to do is continue that gradual rise in retirement age for those born in 1980 until we have reached 71 as the full retirment age. From that point on we need to attach Social Security, Medicare, and our state run pension systems to life expectancy increases. For every 2 years in life expectancy increase we gradually raise the retirement age 1 year. A 2 for 1 increase is all we would have ever needed. If they had put that into place when the program began, the retirement age today would be 71 and Social Security would be solvent indefinitely. It would allow more productivity to be received from the workforce while still funding gradually more people and for more years in retirement. Remember, in the 1930's Life expectancy was 62 and many were lucky to live to 70, today the average person lives until they are 78. Many today live into their 90's while still in very good health.

               As for those working as they get older. The first problem is that the old rules
of working will and are changing drastically. Because of technology and the
basic nature of the corporate world, people need to learn to adapt. The age of a
person working for one company or even two for their whole lives is over. The
age of people generating an income solely from a corporation is also over.
People will need to adapt and beable to start their own consulting or contract
business that will allow them to be flexible for corporations to use. Today
there is a huge need for contracting work from companys not wanting to pay
people benefits but still need the expertise of those in a specific trade or
profession. The bottom line for workers in the future is adaptability.

               Opponents of raising the retirement age say people can't work into their 70's, but with today's jobs people can. 90 years ago jobs were very strenuous and hard on the human body. Through technology in the work place, nutritional advancements, and medical breakthroughs a person who is 70 today is far more capable and alive then a person who was 70 years old in 1930.

               We need to attach life expectancy to the retirement age otherwise we will face this issue again in the future. As we become more technologically advanced, develop even better nutrition, and better our medical system our life expectancies will continue to rise. Because of this we will have to address the productivity issue of a person only working 40 years of a lifetime, while living ever-increasing years of a non working unproductive lifetime. To fix this we can move people from a working environment into a mentor or counseling role for companies and governments. By doing this, we not only will keep people in the work place longer, but also not lose the valuable knowledge they have acquired from their time as employees. The older worker gets to continue to work in a productive manner while easing the physical and mental strains on the body as we age.

                Social Security is an important and vital program that was created at a time of great distress in our nation's history. With the proper reform, we can ensure that it will be sustainable forever. For us to make sure of its solvency, we need to understand its limitations and intended purpose. Once we all understand that Social Security is merely a safety net, we can make the proper changes that will keep this valuable program around for generations of Americans.

If you would like to contribute your own posts to this blog you can contact me at I am open to creative ideas and welcome them.

Latest financial news -