Why the Social Security System in America needs reforms?

Over the past few years, the problem with the Social Security system has been attracting a lot of attention in America and there is a widespread opinion favoring radical reforms to set it right. Are these concerns exaggerated? Or, are they genuine, requiring sweeping reforms to the social security system?

Seventy-five years ago, the then American President, Franklin Roosevelt started the Social Security System or pension system, with the noble intention of helping ageing Americans threatened by poor living standards. Although the pension system he started met its objective, it was faultily designed on the lines of the Ponzi scheme creating trouble for the future generations. The public pension system is essentially a pay-as-you-go method designed in such a way that the present working generations finance the pensions of the present retirees and in turn expect their pensions to be financed by the future generations. The pensions are paid as Defined Benefits (DB), wherein pensioners get a defined level of benefit calculated according to the average pay.

When the system came into existence, there was no up-front funding. Retirees identified then, started receiving benefit cheques although they contributed nothing. The system has since then been running on a pay-as-you-go basis. The general perception about social security is that the workers' payroll deductions along with employers' contributions are pooled in a trust fund from which savings for retirement are generated. But in reality, it is the workers' and employers' taxes that are used to pay the social security checks of present generation of retirees.

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