Social Security for the Elderly in the United States


In the United States, the social security program is an initiative of the government that is intended to assist retirees. As such, it comprehensively covers virtually all the workers; however a majority of the federal employees, as well as those who have been employed by either the local or state government do not benefit from this program. For these, a special pension scheme has bee put in place (The progressive, 2001). The social security act as an income source for close to two thirds of all he retired employees of the United States. According to recent statistics, it has been projected that by the year 2030, the current 3.2 ration of workers for every single retiree will have shrunk to just 2 workers.

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With the retirement of the generation of the baby-boomers, the prevailing system shall have been put under immense strain. The implication them is that the amount of tax payroll that these workers often pays are usually directed at meeting the present liabilities being experienced by the system, instead of helping in the build up of resources that could in the future be relied upon to pay out to the retirees their benefits.

President Bush reform proposals

As far back as 2001 president bush aided in the establishment of a presidential commission. This bi-partisan commission was composed of top congress member experts in the financial markets, and renowned scholars (Kubarych, 2004). The commission eventually gave back their amendments and final report to the president in the middle of 2002. The commission proposed a total of three solutions to the proposals of President Bush as concern the issue of reforming the social security.

The first reform model creates the option of having a personal and voluntary account, with no further specifications on the revenues and benefits of the social security. As such, the proposal has it that the workers are at liberty to invest as much as 2 percent of their wages liable to taxation in these personal accounts. In addition, the personal accounts serve to offset the convention benefits of the social security contributions. This is usually computed at 3.5 percent on that portion of the interest rate falling above the inflation.

It is thus expected that courtesy of this model, the benefits of retirees would increase on the one hand, while the system’s annual cash deficit would tend to plummet by 2020. Nevertheless, these events would often lead to a huge financial deficit, thus calling for change alterations on either the substantial novel resources, or in the benefits themselves by the year 2030.

The second reform model that was proposed permits retirees in the future to re-channel about 4 percent of the payroll taxes that they pay, to a maximum of $ 1000 on a yearly basis. There would thus be no other added contribution that would be needed for the workers. Due to this, the conventional benefits of the social security would have to be offset by the contributions made into the accounts of the workers, again by a 2 percent computation on the part of interest rate that happens to fall above inflation.

This plan seeks to establish a more encompassing and progressive social security through the establishment of a bare minimum benefit, that is payable to those workers with a 30 year period of earning a minimum wage. On the other hand, it would be expected that through this proposal, those workers whose earnings falls under the category of the medium income earners who are entering the job market now would be subjected to a price index as from 2009 (Kubarych, 2004).

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Moreover, there shall be needed some temporary transfer that would enable the trust fund of the social security to remain solvent from 2025 up to 2054, when those employees who are newly into the job market would be nearing their retirement. Though the White House may not have endorsed either of these plans, this model has been argued to be more preferable to the president.

The third reform has laid down a framework that gives those workers with a personal account the option of either reaching or exceeding the existing benefits laws, on the basis of the current rations of wage replacement. This module attains solvency in the social security system in tow ways. First, it helps in the addition of revenues. Then, it helps in a slowed growth of these benefits, at a lower rate than that of the price index.

Impact of proposals by President Bush

The proposals by President Bush tend to raise two major issues. The first one involves balancing payments and revenues in the social security fund (solvency), while the second one involves bringing about private accounts, leading to a massive diversion of payroll taxes from the scheme (Lochhead, 2005). On February 2, 2005, there was a report that was released by the White House in connection with the plan to privatize the accounts of the social security and there are a few specifics that emerged.

First on the least was that the president was willing to help in the creation of the private accounts. As from 2011, it would be possible for all the workers to divert as much as a third of the tax they pay as payroll, translating into 4 percent, up o a maximum of $ 1,000, into an account that would be privatized. Once the workers have retired, they would be subjected to what the report referred to as a “clawback”. This means that for all the money that may have been diverted to their personal accounts, the workers were meant to repay it all back.

The payback amount would also constitute the interest that had accumulated over the years, as well as the added inflation. This would automatically have to be deducted from the workers’ guaranteed benefits. The overall interest rate has also been earmark at a rate that is 3 percent above the annual interest rate (Lochhead, 2005). The implication here then is that save for their money in the private account increasing by a rate that is above the 3 percent, then all virtually all the accumulated value of the personal accounts would have to be swallowed by what the report refers to as “clawback”.

There is also another proposal that refers to the private accounts, which these would lead to an increase in the rate of borrowing, running into trillions. Based on the planned proposal by President Bush, it means that the money which was meant to help in the payment of the present beneficiaries of the social security would not be present (Kornblut & Roberts, 2005). As such the government would have to be forced to seek fro this money from elsewhere, in bid to let the fund settle the benefits that it has promised the beneficiaries. In the absence of such a borrowing, it would then mean that the current beneficiaries would have to have their benefits reduced by a given amount.

The plan by Bush has also been seen a possibility for worsening the financial outlook of the social security. In the event of such an eventuality as the death of a worker, such an account would have to be passed on to the next of kin. Where a divorce occurs, a spilt would thus suffice (Kornblut & Roberts, 2005). With regard to such cases, it would not be automatic that benefits of the social security would be subjected to a reduction, in a bid to recover the amount of money that may have previously been diverted for such a fund. The result of such an eventuality is that there could result a net loss in the social security.

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Moreover, there could also be a limitation is as far as investment choices are concerned. Although it is possible for workers to invest in as many as five index funds, it is not yet clear whose role it is to give such a decision, or even how the determination of such an option would be arrived at. As the ages increases it means that investment may have to be channeled to recycle funds, and which seeks to plummet the stock share as the years go by. One a worker has retired; workers would then be coerced to convert a majority of their accounts to the form of lifetime annuities, with a view to attainting a benefit that is on the same level or even greater than the prevailing poverty line.

By the 28th day of April, 2005, the White House had already given some information regarding how President Bush intended to handle the solvency in social security. First, the cutting of benefits shall be one of the lowest possible. To this end, the president does not in any way favor increasing of the payroll taxes, and neither has he suggested a rise in any other form of funding. Apparently, the White House seems to have withdrawn from its earlier stance of backing the raising of the cap, and which at the moment has been set at $ 90,000.

Beyond this figure, earnings cease to be subjected to taxation by the social security. The White House has also offered that by imposing a cut on the benefits, this could only be achieved once a change has been instituted into the benefit formula. At the moment, the contributions of tax and benefits seem to be growing at the same rate as that of the wage growth (Rizvi, 2005). For those new beneficiaries who by 2005 were earning as much as $ 90,000, the presidential outline provides that the initial earnings would be subjected to a reduced rise, lower than that for the contributed amount in taxes, to equal the rate of inflation.

The individual whose earnings fall between $ 20,000 and $90,000 would also see their benefits rising at a rate that is above that of inflation, but also less than that of tax contributions and wage growth rate. It has also been postulated that the cut benefits that president bush has proposed would have an impact on close to 70 percent of virtually all the workers who pays tax. As such, all those who make more than $ 20,000 by 2005 would see their benefits cut. For those average income earners who shall be retiring by 2075, this cut shall constitute about 28 percent (Kornblut & Roberts, 2005).

On the other hand, those workers that have wage earnings at 60 percent of $ 59,000, and which has been computed to be the average, these would receive a 25 percent cut, should they opt to retire in 20 35, and if this hang around up to 2075, then they would have to receive a 42 percent tax cut (Rizvi, 2005). Another impact is the proposal by the president is in need of additional huge cuts on benefits. This is because the changes occurring in benefits do not embrace all the imbalances in social security.


The proposal by the president to reduce the benefits of the middle class on a massive scale can only aids in the covering of up to 57 percent of computed shortfall. In a bid to address the full shortfall, the president shall be required to either institute added cuts in the retirement benefits scheme, or even go to the extent of instituting cut benefits to the disability funds.


  1. Kornblut, A., & Roberts, S. (2005). Pro and con line up as bush presses social security effort. The New York Times, 5.  Web.
  2. Lochhead, C. (2005). Bush’s social security proposal takes a hit.
  3. Rizvi, H. (2005). “Privatization social security would drive millions below poverty line-report”.
  4. The progressive (2001). “Bush bilks the elderly: President Bush’s proposals would provide a tax cut fro the wealthy, and seriously damage social security and Medicare”
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