INDEPENDENT RETIREMENT ACCOUNTS & SOCIAL SECURITY.   Term Paper ID:24323 Click to get this paper

Essay Subject: Pros & cons of using IRAs as supplement to Social Security & means of ensuring system's solvency.... More...

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Paper Abstract: Pros & cons of using IRAs as supplement to Social Security & means of ensuring system's solvency. Paper Introduction: Introduction The Social Security system, developed during the Great Depression as a way to supplement income for those not protected by pensions and savings, is facing long-term funding difficulties. Baby boomers, who represent the largest age group in American society, are rapidly approaching retirement age when there will be more Social Security recipients than there are contributors. There is significant concern regarding how Social Security can be funded over the long-term, and several different proposals have been made by politicians and economists alike. This research considers one such proposal, which is that individuals be permitted to make contributions to individual retirement accounts without jeopardizing their Social Security payments. Issues Involv Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. The first issue is the increasing costs that Social Securityfaces in the form of increased benefits. A recent report indicating that cost of livingadjustments for Social Security recipients may be excessive could result ina reduction in the level of increases awarded to individuals each year,reducing the costs that individuals must pay. The savings rate in the United States is one of thelowest in the industrialized world, and that savings is what makes capitalavailable for investment in companies and other endeavors. Issues Involving Social Security Reform There are essentially three issues confronting those who would reformthe Social Security system: actual balance, long-term trends, worth ofbenefits (Fisher 4). Those who are least likely to have need of apension in the future (that is, those with high current incomes) are theones who are most likely to be in a position to take advantage of the IRAoption. News &World Report (March 2 , 1995): 67. There are considerable benefitsto the individuals (who have greater responsibility and control over theirretirement funds) as well as to society as a whole, which would see anincreased savings rate and additional revenue brought into the system. This would result in greaterdisincentive to others who might be considering investing in IRAs, andwould also increase the calls for safeguards in case IRAs do not perform asexpected. Introduction The Social Security system, developed during the Great Depression as away to supplement income for those not protected by pensions and savings,is facing long-term funding difficulties. Rohrer, Julie. IRAs are already in use within the American economy asindividuals can make contributions to them and not pay taxes on theproceeds until they receive distribution of the account, which is typicallywhen the contributor retires; at that point they are in a lower tax bracketand the account proceeds are taxed at a lower rate than when thecontributions were initially made. This research considers one suchproposal, which is that individuals be permitted to make contributions toindividual retirement accounts without jeopardizing their Social Securitypayments. Three Social Security Options Proffered. Another problem with the IRA option is that there is no guarantee thatthe investment vehicles chosen by individuals will have a payout levelcommensurate with that received by Social Security recipients. "You're Not As Entitled As You Think." U.S. Another benefit of using Individual Retirement Accounts (IRAs) tosupplement Social Security is that the savings rate of the nation as awhole would increase. Baby boomers, who represent thelargest age group in American society, are rapidly approaching retirementage when there will be more Social Security recipients than there arecontributors. There is significant concern regarding how Social Securitycan be funded over the long-term, and several different proposals have beenmade by politicians and economists alike. This is an immediatesolution which can be implemented and which prevents elected officials fromtaking responsibility for the cuts, making this option more palatable froma political standpoint (Dentzer 67). In the long-term, provisions would have to be made so that IRAcontributors are not penalized for poor investments; however, provisionswould also have to be made so that high-risk investments are discouraged. "Sounding the Alarm on Retirement Planning." National UnderwriterProperty and Casualty-Risk and Benefits Management (August 7, 1995): 18. This can be reduced by changingthe benefits available (politically unwise) or by reducing the benefitsbased on existing tools. Theresult would be that individuals would receive some of their SocialSecurity contributions back and would be responsible for how those fundsare invested. NationalUnderwriter Life & Health (1996, April 8): 4. These individuals will be atgreater risk as a result, and there is likely to be calls for safeguards inorder to ensure that a measure designed to "save" Social Security does not,in fact, cripple it to an even greater degree. In thisway, it is entirely possible that those who contribute to IRAs couldactually see their investments lose value. "Bet on a '95 Tax Credit for Families." Money(December 1994): 14-15. In this way, an option originally conceived to safeguard those whoare at risk for losing their Social Security benefits may actually offerthe greatest amount of help to those who least need the benefits ("Soundingthe Alarm" 18). Thedisadvantages are slight by comparison, and could be mitigated throughcareful planning and implementation. The actual balance issue centers on the fact that thesystem is out of balance relative to the long-term forecasting horizon thatis typically used to project the system's future status. Tritch, Teresa. Perhaps the greatest weakness of the IRA option is that it isessentially a regressive form of taxation. By increasingthe savings rate, the nation as a whole benefits as more capital isavailable for research and development as well as upgrading facilities(Tritch 14). Works Cited Dentzer, Susan. These accounts would be financedby a rebate of a portion of the current Social Security (FICA) tax. If IRAs are used to supplement Social Security, caps can beplaced on Social Security payments and increases since there will be lessburden felt by individuals because of the IRA option. If everyone can contribute afixed amount to an IRA using tax-free dollars (perhaps $2 per year, forexample), this is a greater burden to those with lower incomes (as apercentage of their income). Strengths of Using IRAs as a Portion of Social Security This gives the employees a greater responsibility in the level ofbenefits that they would receive when they retire, and would make themactive participants in the system. Fisher, Mary Jane. Weaknesses of Using IRAs as a Portion of Social Security This long-term solution places a greater responsibility on taxpayers,and there are certain to be individuals who will not take on theresponsibility for contributing to IRAs. The worth of benefits is a reference to the fact that manyworkers (particularly younger workers making contributions to the system)do not receive a relatively high rate of return relative to theircontributions and those of their employers. The long-termtrends refer to the aging of the American population and the fact thatcurrent benefit costs are increasing at a faster rate than current revenueinflows. Conclusion Recognizing that IRAs represent a significant investment vehicle formany Americans and permitting workers to take advantage of that systemwithout jeopardizing their Social Security benefits is one way in which theburden on Social Security can be reduced. Individual Retirement Accounts (IRAs) and Social Security In the long-term, Personal Security Accounts could be created (anddeemed mandatory) which would provide an additional vehicle for individualretirement accounts (IRAs) (Dentzer 67). The stock market is not aguaranteed source of revenue, but there are certainly mutual funds whichhave performed well in recent years, and putting some of the money fromSocial Security offers a way for the system to boost its revenue level(Fisher 4). Over the medium term, beginning in 1997, for example, Social Securityfunds can be invested in equity vehicles (stocks) as a way to increase theperformance of funds being received currently. Using IRAs to supplement Social Security also relieves some of theburden on the Social Security system, which affects the actual balance ofthe system. That part of the payroll tax which isnot refunded to the taxpayers would be used to pay current fund benefits.This option also increases the control that participants have in the returnthat they receive on their retirement funds since they would be able toself-direct how those funds are invested. This will givelonger life to the Social Security system and offer greater benefits tothose individuals who are not able to contribute to their own IRA orpension funds (Rohrer 97). As in any situation where an organization is faced with decliningrevenues and increased costs, the solution lies in addressing both parts ofthe problem. "The Great Nest Egg Hunt." Institutional Investor(March 1994): 97-1 2. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.