In 1935, Franklin Delano Roosevelt embarked on a radical social plan to help Americans live happier and healthier lives in their old age: Social Security. Created as part of the FDR’s New Deal, the social fund’s goal was keep the majority of the elderly population from living in poverty. And for the rest of the 20th century, the plan succeeded.
The premise behind Social Security is simple. Every working American contributes money to the plan’s trust each year in the form of taxes. This trust allocates funds to the population that currently qualifies to collect the monthly stipend.
Today, Social Security is so deeply embedded into our society that we often forget or fail to examine its origin and intent. It’s also impossible to not worry about it’s future.
The plan’s alternative beginning
Few people are aware of the FDR’s desire for the Social Security plan during its infancy. A desire that may have spared us the challenges we face today. Challenges that will tough to mitigate and even tougher to implement policies to affect the current and future obstacles.
We’re living longer, more productive lives. While this may mean that we’re able to push off retirement by a few years or find part-time work to supplement benefits; the fund will ultimately be paying people money for a longer amount of time.
Additionally, health plays a significant role in the longevity question. We may be living longer lives, but Americans are facing more health issues than any other generation before them. This means high hospital bills and long-term medication bills.
Rise of the Nuclear Family
The year 1920 marked the first year in American history where a larger part of the population resided in cities than farms. This trend towards urbanization led to many significant changes, most notably, with the decrease in extended family living. Coupled with the longer lifespans, the United States population faced a new challenge. How to best support and care for the aging population who may not reside or benefit care from the rest of their family?
FDR’s Other Deal
FDR proposed a different plan than we know today; a plan that might offer a silver-lining to the challenging environment that social security continues to face.
In FDR’s Legislative packets in 1925, he suggests the following system:
“In the important field of security for our old people, it seems necessary to adopt three principles: First, non—contributory old—age pensions for those who are now too old to build up their own insurance. Second, compulsory contributory annuities which in time will establish a self—supporting system for those now young and for future generations. Third, voluntary contributory annuities by which individual initiative can increase the annual amounts received in old age. It is proposed that the Federal Government assume one—half of the cost of the old—age pension plan, which ought ultimately to be supplanted by self—supporting annuity plans.”
While the first two principals are now ingrained within our current system, let’s take a look at the importance of the third.
Referred to as annuity bonds, the individual could invest money towards their future, which they would cash out when the time was deemed appropriate. These certificates of deposits would offer a minimum guaranteed interest rate.
But how would this third option help us today?
While there’s no easy way to implement such a dramatic shift in the government’s core social programming, we can observe the effects in a country that sits halfway across the world.
Social Security Down Under
If this plan seems obscure, one can simply look towards Australia for a direct comparison. In the 1980’s Australia adopted a similar plan to FDR’s alternative option to Social Security. Facing a high percentage of older, retired citizens, the country adopted a three-prong program, initiated by the government labor organization and various union groups. This program was created to support its retirees in a long-term, resourceful way.
The way it works is simple. First, the fund mandates that employers provide a hefty amount of savings towards each employees’ future. Additionally, employees are encouraged to save at least 9% each year. Over time, workers accumulate a large nest egg of savings that is funded in part by their workplace and themselves. To ensure that the nest is large enough, an additional government supported program will allocate money to residents if, or when, their fund runs dry.
The plan may be young, but it’s effects have already received tremendous praise from its citizens.
Is the U.S. Ready for such a Plan?
It’s estimated that 10,000 Baby Boomers edge into the realm of retirement each day. The large majority of the individuals collect monthly social security. For many of the cases, this monthly allotment cannot cover living expenses, medical bills, rising costs of living in major urban centers.
While many may point to several strategies regarding reformation of the current program; there are few that consider turning towards a private option.
Transforming the fund from a government run program to a private system would require a tremendous amount of restructuring. Not to mention the political fissures that would ensue. But how we attack this problem now will set a precedent for the future.
Preparing for the Millennial Stampede
We may be struggling to accommodate the Baby Boomer generation today, but what happens in the future, when the next generation overcrowds the already strained system?
The Millennials, individuals born between the years of 1982 and 2004, will pose an equally difficult strain on the fund. Medical advancements will only continue to allow humans to live healthier, longer lives. The culture of the human race will eventually shift to accommodate a longer lifespan, possibly pushing back all life stages, including retirement. Yet for an immediate generation, like the Millennials, this cultural shift will not be fully realized. In fact, the majority of young people anticipate retiring at a similar age to those retiring today.
While the issues concerning today’s fund may be more relevant, we must look towards the future and make plans accordingly. Privatization offers a way to plan better and save more.