social security administration

Social Security Administration Fixes You Must Know

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What is the Social Security Administration?

Consider the Social Security Administration (or SSA) as the financial backbone of the elderly, disabled and needy families in America. It started in 1935 when America was going through the difficult phase of the Great Depression. The then President Franklin D. Roosevelt implemented it under his New Deal program.

Even today, the Social Security Administration is playing an important role in ensuring the financial security of millions of citizens of America.

It is not just a department for sending retirement checks. Many major programs run under it:

  1. Retirement benefits
  2. Disability insurance (SSDI)
  3. Supplemental Security Income (SSI)
  4. Survivor benefits to the families of deceased workers

Enrollment in Medicare (although it is managed by another department)

Why is the Social Security Administration in the news?

In recent months, and especially in the last few weeks, three major issues have surfaced regarding the Social Security Administration:

  1. Huge staff shortage

In the last 10 years, this organization has lost 15% of its employees. On the other hand, the number of citizens retiring and applying for disability has increased rapidly. That is, the needs increased but the resources decreased.

Reasons for this:

  1. Long queues in SSA offices
  2. Delays of several months in getting benefits
  3. No response to phone calls
  4. This problem has become very serious for elderly and disabled citizens
  5. Recovery of overpayment

Sometimes Social Security Administration mistakenly sends more money to someone. Now those people who made the mistake or who got extra money all the money is being taken back from them, even if the fault is of Social Security Administration.

Many elderly people suddenly received notices to return thousands of dollars, which has upset them a lot.

  1. Trust fund crisis

The SSA trust fund from which retirement payments are made could run out by 2035. This doesn’t mean payments will stop completely, but it is likely to reduce by 20-25%.

SSA’s contribution to the US economy

Now let’s think from a business and financial perspective about why the Social Security Administration is so important.

  1. A system like the National Pension Scheme

Every working person in the US and their employer pay 6.2% of their salary as Social Security tax. Self-employed people pay the full 12.4% themselves.

This money is deposited in a trust fund from which pensions are paid to current retirees. When you retire, the next generation will pay this tax to pay your pension.

  1. The ratio of working and retired people

In the 1960s, there were 5 workers for every 1 retired person. Today this number has fallen to 2.7. And will fall even further in the future.

Reasons:

  1. People are living longer
  2. The birth rate is decreasing
  3. The baby boomer generation (people born after WW2) is now retiring
  4. This puts tremendous pressure on the SSA.
  5. What if SSA fails?

It is the biggest source of income for about 50% of American retirees. If it fails:

  1. Millions of elderly people could go into poverty
  2. The government will have to spend more on welfare
  3. Markets will slow down, investors will worry

So this is not just a social issue it can lead to a financial crisis.

Is the Social Security Administration going bankrupt?

Let’s talk about the numbers:

  1. The SSA’s Old-Age and Survivors Insurance (OASI) Trust Fund is expected to be depleted in 2033–2035
  2. After that, only 77% of pensions will be funded by tax money

Some suggestions to deal with this crisis:

  1. Raise the retirement age
  2. Raise the payroll tax
  3. Reduce benefits for wealthy retirees
  4. Fund the government from general revenue

But these are all politically sensitive issues.

Its impact on business and markets

  1. Changes in retirement planning

If people lose trust in SSA, they will:

  1. Save more
  2. Delay retirement
  3. Make risky investments

This forces financial advisors to change their clients’ strategies.

  1. Impact on the stock market

If seniors spend less, then:

  1. Brands like Walmart, Costco will be affected
  2. The travel industry (airlines, cruises) will slow down
  3. The health care sector may also be affected

And if political debates related to SSA (such as budget disputes) heat up, there may be instability in the market.

  1. Impact on employers

If taxes are raised to save SSA, then:

  1. Employee costs will increase
  2. Job growth may slow down

What can be done?

Below are some possible solutions that policymakers might consider:

Increasing the payroll tax
From 6.2% to 7.2% — could add up to a huge amount.

Cutting benefits for the wealthy
Means-testing: giving higher earners less SSA benefits.

Raising the retirement age
It’s currently 66-67. There are suggestions to raise it to 69-70, but that would be difficult for manual laborers.

Investing SSA funds
Currently the trust fund invests only in U.S. Treasury bonds. Some experts want the SSA to be allowed to invest partially in the stock market — which could yield more benefits.

Conclusion: Why should you care?

You may be young now, but the Social Security Administration affects every citizen. It is:

  1. An organization that pays out more than $1 trillion a year
  2. The main source of income for more than half of the elderly population
  3. Directly linked to the stability of U.S. financial policies and markets

If the Social Security Administration’s policies change it will not only affect taxes, but also your retirement planning, investments, and financial future.

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