Fixing Social Security: How the US Can Create a New Era of Social Insurance

Social Security 2023

The debt ceiling debate has brought up the future of Social Security and Medicare, with lawmakers potentially looking to cut costs to address the country’s debt. However, both Biden and the House Speaker have vowed to keep changes to Social Security and Medicare off the table.

There are proposals to create commissions to examine the programs’ future, but some experts argue that this fast-tracks changes without proper public vetting. The White House has called the idea of a commission a “death panel“. Any changes to Social Security’s trust funds would require bipartisan support, and Biden addressed this in State of the Union address.

Social Security is a Hot Topic

As the country approaches retirement age, the state of Social Security is a hot topic of discussion. Some conservative politicians, like those in the newly majority Republican House of Representatives, are pushing to cut Social Security benefits, citing its financial shortfall. But the truth is, fixing Social Security is not only achievable but necessary for the millions of Americans approaching retirement.

According to financial planners, the most critical factor in determining retirement readiness is one’s ability to maintain their standard of living after retirement. For many, Social Security is the only source of income, which replaces only about 40% of pre-retirement income, while financial advisors suggest that retirees need to replace at least 70% of their wage income. With the median retirement account balance of a near-retirement household at just $144,000, many Americans are facing a decline in their standard of living in retirement.

Social Insurance

The term “Social Insurance” has been used by policy experts to describe programs like Social Security and Medicare. These programs bring us together as a society and provide us with protection from certain risks in exchange for our insurance contributions via payroll tax. It’s a collective approach, where everyone who contributes is protected, pooling our risks and responsibilities.

Over the past few decades, however, there’s been a shift away from this collective approach and toward market-driven products and services offered by corporations, often incentivized by tax benefits. These products shift the risk to individuals and have failed to serve the needs of middle and low-income Americans. It’s time to bring back social insurance and create a new era of social insurance in America.

Middle and Low-Income Households Need Help

In the past few decades, the rise of tax-deferred saving systems has helped the affluent accumulate wealth, but it has not bridged the gap left by the decline of traditional pensions. The recent changes in the retirement system, including the Secure Act 2.0, may help the wealthiest retirement savers, but it does not address the needs of middle and low-income households.

Social Security is a critical piece of most Americans’ retirement and fixing it is necessary for ensuring a stable standard of living for retirees. The country needs to swing back to the collective approach of social insurance and create a new era of social insurance that serves all Americans.