Connect with us
nairametrics

Around the World

As fears rise over the sustainability of America’s Social Security Fund…

The path to extinction seems to be the route on which the famous Social Security Trust Fund of America is on as at moment.

Published

on

As fears rise over the sustainability of America’s Social Security Fund...

We often hear of different mammals or amphibious going into extinction. But not only living things get extinct; inanimate things can get extinct as well. The path to extinction seems to be the route on which the famous Social Security Trust Fund of America is on as at moment.

What is happening to America’s Social Security Fund?

According to available information from the Social Security Trustees’ annual report issued recently, “starting in 2020, the Social Security trust funds for retirement and disability insurance will begin drawing down assets to pay benefits.”

The report has it that this  would be the first time since 1982 that the Social Security’s total cost has exceeded its total income. A frightening indication from the report is that the trust fund that covers retirees and their families and the one that covers disabled workers and their families will be out of money by 2035. The fund devoted to retirees is projected to become depleted in 2034, at which time Social Security revenue will cover only 77% of benefits promised, the report said.

Why is this happening?

The major reason why the depletion is taking place in the Social Security Trust Fund is because of the increase in the number of baby boomers retiring from the work force. According to the report:

“Projected costs are expected to rise more rapidly as more baby boomers retire than people enter the workforce. Social Security’s annual cost, in relation to the projected gross domestic product, is predicted to increase to about 5.9% by 2039, up from 4.9% in 2019.

“This seeming “emergency” has prompted the trustees of the Social Security Trust fund to urge lawmakers to address the problem quickly. According to them, implementing changes sooner rather than later would allow more generations to share in the needed revenue increases or reductions in scheduled benefits.”

The way forward?

America has been known for being very proactive and swift in in dealing with  issues, unlike the Nigerian Senate. The US Congress, through House of Representative member, John B. Larson, introduced the Social Security 2100 Act in January, this year. Larson is a Democrat representing the state of Connecticut, and also the Chairman of the House Ways and Means Social Security Subcommittee.

The aim of the bill is to shore up Social Security by implementing an across-the-board benefit increase for current and new beneficiaries as well as improving cost-of-living adjustments, among other provisions. To pay for the added benefits, the bill proposes for gradual increase in the Social Security contribution rate beginning in 2020 so that by 2043, workers and employers would pay 7.4%, instead of the 6.2% being contributed today.

Though vote on the bill has not been scheduled, there seems to be an agreement across the aisle that something needs to be done to save this next egg that many have hoped to build their retirement upon.  In a statement issued very recently, the Senate Finance Committee Chairman, Chuck Grassley, a Republican from Iowa, said that bipartisan work will be needed to shore up both Social Security and Medicare. According to him:

“While the strong economy and labour markets are helping Americans across the board, Social Security and Medicare trust funds also benefit. However, it remains that those trust funds are not financially sustainable, and reforms are necessary to ensure stability and sustainability of Medicare and Social Security programs.”

 In the meantime, many people are scared

Although there seems to be a seemingly absolute resolve to “save” and strengthen the social security fund, one thing is clear, there is fear and apprehension among retirees and others about how long the fund can last.

The Implications for All

The situation of the fund as is being painted by the report, has far reaching implications for those already retired, those still working, and even policy implications. For those that have retired, the implication is that many of them may be forced to go back to work if the Social Security fund runs out or is threatened. For those still working, the implication is that the much younger ones may not get their social security benefits or they may become eligible for the benefits at a much older age than the current 62 and 67 years. They could also get reduced benefits.

In addition, as already noted, those still working may be forced into contributing more with the implication of getting a reduced take home pay.

app

Lessons to be Learned

News and events like this often provide a food for thought both for those that are directly impacted and those watching from afar. One takeaway from this is that no matter how good or credible a Government may be, its programs may become unsustainable or even broke with time.

The Social Security has come of age, having been signed into law on August 14th, 1935. That is 84 years ago. If that is a human being, he or she may have been demented by now. The fact that the program has lasted this long is quite commendable.

What Nigerian authorities should do

The Nigerian Government and National Pension Commission, PenCom, should take a cue from what is happening to the American Social Security fund and start to gradually but minimally increase the contributions from both employees and employers so as to build in strong sustainability into the system. They should pay close attention to the demographic make-up and dynamics of pension fund participants with a view to making the needed policy changes as at when required.

Attention to Nigerian Workers 

Another lesson is that it is good to have a plan B not only in relation to retirement planning but in almost all walks of life. Employees should not place their hopes only on government retirement programmes. Instead, they should also have their own personal retirement accounts as a buffer, one for the other, in case the unthinkable happens. In the US, for example, many employees not only contribute to the Social Security fund, they also have employer sponsored retirement plans, popularly called 401k plans which acts as a fall safe buffer should the Social Security fund run dry.

One may be quick to point out that the US employees are able to do it because they are well paid, but I will be quicker to add that saving for retirement, and in deed savings as a whole is not a luxury but a sacrificial commitment to forgo today’s comfort for tomorrow’s. It is time to stop the senseless exhibition of fleet of cars, Rolex watches, Gucci bags, and time to build next eggs.

app

Uchenna Ndimele is the President of Quantitative Financial Analytics Ltd. MutualfundsAfrica.com and mutualfundsnigeria.com (both Quantitative Financial Analytics company website) is a leader in supplying mutual fund information, analysis, and commentary on African mutual funds. We provide reliable fund data; and ratings information that will add value to fund managers, the media, individual investors and investment clubs.

1 Comment

1 Comment

  1. Anonymous

    April 28, 2019 at 3:25 pm

    Good analysis on Pension fund in Nigeria. I think there is a greater challenge in how the fund is managed to deliver yield to beneficiaries. The average yearly interest on fund in the system has not been properly exploited to deliver compounded interest on contribution. only marginally has any yeild been noticed in what are being declarred as accrued benefits of beneficiaries in the meantime.

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Around the World

Zoom’s market valuation hits $50 billion mark, thanks to COVID-19

Zoom’s share price now trades at an eye-watering 55 times estimated revenue compared with an average of 7 times for information technology stocks in the S&P 500, according to information obtained from Bloomberg.

Published

on

Zoom

Zoom Video Communications’ shares surged to record highs on Friday, as bullish runs in the last hours of trading helped the company to close with a market capitalization of more than $50 billion. The stock gained about 9.7% to jump to $179.48, thereby giving it a market value of $50.6 billion. 

Note that this is the first time Zoom’s valuation is reaching this high level since it became a quoted company. The tech giant, which owns popular video conferencing software “Zoom”,  has gained more than 160% this year. This is because investors are betting that the surge in Zoom users amid the COVID-19 pandemic, would eventually translate to long-lasting revenue growth.

UBA ADS

READ ALSO: How VCs are encouraging terrible business practices by founders

Zoom’s share price now trades at an eye-watering 55 times estimated revenue compared with an average of 7 times for information technology stocks in the S&P 500, according to information obtained from Bloomberg.

Following the significant jump in the company’s valuation, the net worth of its founder and Chief Executive Officer, Eric Yuan, also rose significantly by more than $800 million on Friday. He now has a net worth of $9.3 billion, according to the Bloomberg Billionaires Index. 

GTBank 728 x 90

Meanwhile, in reaction to Zoom’s overnight success, Gennie Gebhart, a researcher with the Electronic Frontier Foundation, said she hoped Zoom would change course and offer protected video more widely. It should be recalled that some users of the app had raised security concerns back in April, as Nairametrics reported

READ ALSO: Did Satoshi Nakamoto cause the panic sell-off in Bitcoin market

Meanwhile, Zoom has recruited Alex Stamos, a former chief security officer at Facebook, and other top security experts to help deal with the security issues which led to some top companies banning its use. While discussing efforts being made to deal with the security challenges, Stamos told Reuters:

 “At the same time that Zoom is trying to improve security, they are also significantly upgrading their trust and safety. The CEO is looking at different arguments. The current plan is paid customers plus enterprise accounts where the company knows who they are.” 

app
Continue Reading

Around the World

Central banks digital currencies pose a threat against the U.S dollar

In general, digital currencies could weaken the power of U.S. sanctions and the ability of the U.S. Treasury to watch illicit financial flows.

Published

on

Central banks digital currencies pose a threat against the U.S dollar.

A new report by America’s biggest bank, JP Morgan Chase, said the U.S dollar is being faced with a major threat as many  central banks’ digital currencies continue to gain traction.

Analysts, including Josh Younger, the head of U.S. interest-rate derivatives strategy and Michael Feroli, the chief U.S. economist, wrote in a report saying this:

UBA ADS

“There is no country with more to lose from the disruptive potential of digital currency than the United States.

This revolves primarily around U.S. dollar hegemony. Issuing the global reserve currency and the medium of exchange for international trade in commodities, goods, and services convey immense advantages.” 

Aditi Kumar and Eric Rosenbach also recently penned an opinion piece for Foreign Affairs in which they noted that “Just recently, America’s arch-rival China became the first major economy to carry a real test of a national digital currency.”

GTBank 728 x 90

(READ MORE: Why the strong dollar is giving Nigeria headache)

In general, electronic currencies could weaken the power of U.S. sanctions and the ability of the U.S. Treasury to watch illicit financial flows. A digital Chinese currency (yuan) combined with China’s developed electronic payment systems may give China more future influence than it ever bargained for.  

What Nigerians should know about Digital currencies

A digital currency is a cash balance recorded electronically on a store value card or other physical devices, which could someday replace the physical notes of the naira, for instance.

Digital currencies can be decentralized, that is where the control over the cash supply can come from diverse sources. Digital  currencies can also be centralized, where there is a midway point of control over cash supply, just like the way central banks work.

Central banks digital currencies pose a threat against the U.S dollar.

app

Although JP Morgan does not see the U.S dollar being overthrown as the world’s reserve currency anytime soon, experts warned that the U.S dollar dominance could weaken. This is because its processing trade settlement and the SWIFT system could make it more vulnerable.

Patricia

The American bank continued by saying:

“Offering a cross-border payment solution built on top of a digital dollar would, particularly if designed to be minimally disruptive to the structure of the domestic financial system, be a very modest investment to protect a key means to project power in the global economy,

“For high-income countries and the U.S. in particular, digital currency is an exercise in geopolitical risk management.” 

Federal Reserve Chairman Jerome Powell said months ago that the Federal Reserve was taking a critical view on the issues regarding a digital currency.

app
Continue Reading

Around the World

Dollar gains against major currencies

U.S dollar stood firm against major currencies on Monday as fears over rising tensions between America and China over Beijing’s plans to begin

Published

on

The US dollar remains king, U.S dollar gains against major currencies, America threatens China with sanctions.

The U.S dollar was up on Monday morning during London’s trading session after protests in Hong Kong yesterday escalated U.S-China tensions.

US dollar stood firm against major currencies on Monday as fears over rising tensions between America and China heightened.

UBA ADS

The American Dollar Index that monitors the U.S dollar against a basket of other major currencies was slightly up 0.02% to 99.945 by 11.10 am Nigerian local time.

What it means: Nigerians hoping to meet a foreign exchange payment obligation, transactions via the dollar to countries like Europe, Japan, would have the need to pay fewer dollars to fulfill such transactions.

(READ MORE:Reports: China may defer loans owed by Nigeria and others)

GTBank 728 x 90

Meanwhile, the friendship between the Americans and Chinese has soured lately since the outbreak of the COVID-19 pandemic. US President Trump and President Jinping of China have traded words against each other issues surrounding COVID-19, including accusations of lack of transparency and cover-ups. 

 

American Dollar remains king as stimulus fails to stop global financial market panic,Demand for “Inflow dollars” drive exchange rate to as high as $N420/$1 compared to “Cash dollars”, U.S dollar drops against major currencies, tension rises between America and China, U.S dollar gains against major currencies, America threatens China with sanctions.

Consequently, the U.S. Commerce Department added 33 Chinese businesses to a blacklist on Friday, and some U.S. Senators proposed sanctions on those businesses.

“The biggest concern is the tension between the United States and China, things were already bad, and it is likely to get worse because of the Hong Kong security law. This supports risk-off trades, which is positive for the dollar and the yen,” Tekuya Kanda, the general manager of research at Gaitame.com Research Institute, told Reuters.

app

Patricia
Continue Reading