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.
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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.
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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.
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.