Social Security System: Module 2 Web Assignment

Social Security System: Module 2 Web Assignment

Social Security System

Social security is one of the largest single government6 in the world currently and accounts for almost 24% of the total US spending. Various changes have occurred in the social security system since it was incepted. It has continued to face significant challenges and currently faces unpromising future expectations.

Social Security Funding

Social security is funded through the deduction from the payroll tax. The employees and the employers usually pay 6.2% of their total wages and can pay up to a maximum taxable amount of $128,400. However, the self-employed also pay for social security in which they are required to pay 12.4%. Apart from payroll taxes, social security is also funded from net interest income that is earned by the assets of the trust (US Treasuries), Reimbursements from the General Fund, and Taxes assessed on asocial benefits. However, the highest percentage of funding comes from payroll tax while others contribute to just a smaller percentage. The payroll taxes are usually set by the law (Wathen, 2016).

How the Social Security System Works

The social security system works differently from other financial institutions. Usually, once you pay money into the social security system, the money gets directly paid back out to the other individuals who at that time are getting social security checks. This arrangement ion the system came out from how the system was started. After it was implemented, many people need benefits, and there were no began money hence it was decided that all those who are employed could pay as then their money is used to pay those who needed the benefits. The precise aim was that despite the system having no money to start, the system would continuously fund itself since those retiring could get paid by people who are currently working. The system works differently with the 401 (k) that most individuals’ are used to. Most people usually get worries about what happens to the excess money that the system collects. The system precisely uses surplus money to buy US treasury bills. Soon, the social security system is expected to start cashing in the bonds; hence the government will have to make good on them with tax revenue (The United States Social Security Administration, n.d.).

Changes made to the Social Security System Since it was Incepted

Social security was created back in the year 1935 to help in providing economic security to the employed American citizens. After four years since it was created, the social security program was expanded to protect the dependents and survivors of the American workers. This change made most of the American to start viewing the pensions they receive as their right and not luxuries hence making the politicians engage in a struggle of shaping the program together with its funding. Generally, the first change that has occurred in the program is that it is now benefiting more people since it even incorporates disability benefits (Backman, 2017).

Additionally, the full retirement age has been pushed back to ensure that people can receive pension benefits after reaching the full retirement age. Benefits are calculated based on individual earning in the top 35 years. The benefits from the program have also increased with now the current enrollee earning an average of $1,360 a month while those who were substantial earners during their careers receiving up to $2,687. This is a significant change since the program provided only $17.50 motley benefits back in 1942. Next, the cost of living adjustments has been implemented; hence there is no need for congress approval for members to be granted cost of living adjustments as it was in the past. During the initial days after the social security program was created, people were required to go to the local office then fill the right papers to be able to sign in. However, the social security program has grown to do everything electronically. People are now able to enroll online hence do not waste any time going to local offices to fill papers. Lastly, social security rulebook has grown exponentially over the years (Backman, 2017).

Period When Social Security Will Begin to Experience Difficulties

At the time when the trust fund reserves will become exhausted, the social security program will start to face challenges of paying the benefits. As that point, Congress will be forced to make some changes to the funding of social security as well as to the scheduled benefits. In this case, the payroll taxes might increase which may lead to the implementation of checks (Stephen, 2010).

Pros and Cons of Replacing Social Security with Private Funds

Making replacement of the current government-administered system with partial privatization of Social Security would allow workers to precisely manage their retirement funds via investment accounts. Supporters of investment precisely argue that workers have the right to manage their retirement investments and they would get more returns from managing their private accounts than what the current social security system can offer. Precisely, this would help solve the issue of solvency in the current social security system. Some of the pros of privatization include; the current Social Security program will become insolvent by 2034, so a better system is urgently required; With personal accounts, retirees will see higher returns on their investment; Private accounts give individuals control over their retirement decisions; Individual investment accounts would boost economic growth by injecting money back into America’s financial system; Privatization reduces government workforce, red tape, and wasteful spending; Private accounts benefit the poor and minorities; Congress or the President can not raid private accounts; Private accounts would allow benefits to be inherited; Social Security taxes have become excessive; A system using private accounts would be restricted to allow only low-risk investments so returns would be assured; Private retirement accounts give workers the contractual right to retirement benefits, a right missing from the current Social Security system; and Being able to invest in one’s private retirement account removes the uncertainty that accompanies the current, government-controlled program (Privatizing Social Security –, n.d.).

The cons of privatization include; Privatizing Social Security would do nothing to solve its impending insolvency, and would actually make it worse; Private Social Security accounts will undermine the guaranteed retirement income provided by Social Security by putting peoples’ retirement money at the whim of the stock market; Many people lack the basic financial literacy to make wise investment decisions on their own; Privatizing Social Security would dramatically increase the national debt; Privatizing Social Security would expand, not reduce, government bureaucracy; Guaranteed benefits would be reduced significantly under a privatized system; If workers had to adopt private accounts, unscrupulous financial advisors could take advantage of novice investors; Privatizing Social Security will put billions of dollars into the pockets of Wall Street financial services corporations in the form of brokerage and management fees; Social Security is highly efficient in comparison with private accounts; Other policy changes can fix Social Security more effectively and less disruptively than privatization; The accusation that Social Security has been “raided” by the federal government is misleading and does not provide a justification for privatizing the program; Social Security is an equalizer, leveling the playing field for rich and poor, whereas private accounts would favor the wealthy (Privatizing Social Security –, n.d.).

I do support privatization since I believe that it could be much helpful to the citizens as well as reducing the burden to the government of ensuring the availability of funds to pay for benefits. Additionally, privatization would be of great help to those less fortunate and the poor since they have shorter life expectancy; hence they will be able to start enjoying their benefits as early as possible. I believe that our economy benefits much from financial investments; thus privatization would spur economic growth forward.




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Wathen, J. (2016, May 23). How Is Social Security Funded? — The Motley Fool. Retrieved from