Gero 350 What s the future for social security?

Reading 38: How to Save Social Security What do Diamond and Orszag suggest are the two problems with the current Social Security system, and what solutions do they propose?

"Share the pain" SSI shortfall can be reduced by Reducing promised benefits in the future, modestly increasing tax rate, and raising the maximum level of earnings subject to the payroll tax. Cuts in benefits would be progressive to protect poor people.

Social Security retirement benefits average around

$14,000 a year for a single individual

Social security payroll taxes now bring

$400 billion each year, an amount larger than the entire military budget

There is debate over whether Social Security is:

1) a welfare program designed to prevent impoverishment in old age or 2) an annuity program that entitles everyone who pays into it to receive proportional benefits

Someone earning big wages would have a replacement rate of

28%

In 2011, the tax on individual wages was temporarily reduced to

4.2%; this "payroll tax holiday" was intended to stimulate the economy.

Someone earning the average would have a replacement rate of

43%

Married women are entitled to

50% of their husband's Social Security benefits, and a higher amount if the husband dies

Someone earning half the average would have a replacement rate of

56%

And people making more only pay

6.2% on the first $106,000 of income

The age of eligibility is set to slowly rise from 65 to

67 over the next few years

Social Security was originally planned for a one-earner family, but more than

70% of women are in the labor force today

Men age 21 have a

72% chance of living to age 65 and expect to live 17 years after.

Women age 21 have a

83% chance of living to age 65 and expect to live 20 years after that

More than just a retirement income program

Also provides wage-earners with disability insurance $203,000 and life insurance $300,000

To be eligible for Social Security benefits, a person must:

Be age 65 (or age 62 for early retirement) and have worked for 10 years in a job where Social Security taxes were deducted

Reading 41: Social Security for Yesterday's Family? Steuerle and Favreault remind us that Social Security was implemented during a very different historical time when Americans lived much shorter lives on average than they do today. What reforms are they suggesting need to be made to adjust to the changing modern family and its needs in later life?

Benefit should not be based on sex or marital status it should be based on individuals with low lifetime earnings and low income.

Social security surplus is really a collection of

IOU's that will be needed when the baby boon generation starts to retire in large numbers causing surplus to decline and causing problems.

Privatizing can mean several possible changes from the current system:

Increase the level of funding—move from a pay-as-you-go system to a "funded system" that involves an increase in national savings

Reading 39: The Necessity and Desirability of Social Security Reform Ponnuru takes a more conservative approach to the issue of Social Security reform than do Diamond and Orszag. What are his main assertions and what solutions does he put forward?

Increased life span and decreased childbearing have made pay as you go hard to sustain. Forms of denial even if economic growth does help, it mostly by swelling the balance of the trust fund, giving the system more IOUs to claim against future tax payers. Price index would eliminate short fall by itself. personal accounts are a way of softening the blow.

Reading 40: Social Security Reform and Benefit Adequacy What are the contours of Thompson's framing of "benefit adequacy" when it comes to Social Security benefits?

Reduction of social security benefits are not a viable way to dealing with the financial gap. Half retirees would have benefits fall below the reasonable benchmarks for benefit adequacy. First, any further increase in the normal retirement age needs to be accompanied by an equal or greater increase in the age at which people are first eligible to draw benefits. Otherwise further increases in the reduction factors for early retirement will cause actual retirement benefits to continue to fall relative to average earnings levels. Second absent a substantial increase in age at which benefits can first be drawn, it is probably not possible to close the financial gap current projected for Social Security without the financial gap entirely through benefit to such low levels that the program would fail to serve the social purpose for which it was created.

Another problem with Investing the Trust Fund in the stock market is the size of the trust fund which would mean that, by 2015,

Social Security would own $800 billion in shares—or 10% of the entire stock market This would be a big step toward national influence over the stock market

The Social Security payroll tax is a "regressive tax"

a person earning $20,000 a year and a person earning $106,000 a year both pay at the same 6.2% rate

Another variation is an "affluence test" where

benefits might be eliminated for people who are above some threshold

But the baby boom generation is much

bigger than the cohort before or after it

Second meaning to privatization might be to accompany private investment with increased

choice over the individual retirement savings e.g., investing part or all of the Trust Fund in private savings such as the stock market vs. bonds

Woman's lifetime economic contributions for social security is

disregarded

The largest

domestic government program today

Third meaning of privatization is to eliminate the way Social Security redistributes benefits

either from one generation to another, or from high-wage earners to low-wage earners

Others argue for making eligibility "means-tested," or only available to people whose income

falls below a certain threshold

But an across-the-board reduction would result in more

hardships for the poorest beneficiaries

The generation following doesn't

have enough workers to contribute as much as will be needed under the pay-as-you-go system

Some possible problems include: To finance the privatization of Social Security, the federal government would

have to borrow money to make up for retirement benefits already promised to people now retired. means that people would have to pay higher taxes

Today's higher divorce rates, gender pay gap, and the fact that married women earn more from their husband's benefits than their

own work benefits are a few of the gender inequalities with Social Security

Social Security is modestly

progressive in its distribution of benefits because of the "replacement rate"—the proportion of wages replaced by Social Security at the point of retirement

Two income couples

receive proportionately lower retirement benefits than one-earner couples

Others suggest reducing Social Security benefits to make them

reflect the actual rate of inflation

Yet, Social Security was never meant to be used as the

single source of income for people in retirement

75 years later, Social Security remains America's most

successful, and perhaps most popular, domestic government program

Social Security is funded by payroll taxes that go into a large account called

the Social Security Trust Fund

If more money is collected from payroll taxes than is paid out that year, then

the Trust Fund runs a "Social Security surplus"

Social Security

the public retirement pension system administered by the federal government

Some people suggest raising the age of eligibility even higher

to 69 or 70, but this could create more hardships for minority groups who have a lower life expectancy than Whites

Any program that tries to accomplish such fundamentally different goals is bound

to have both its challenges and its critics

Originally designed to operate as a modified "pay-as-you-go" system,

where the money collected each year mostly pays for people who receive benefits in that same year

Funded by a tax on earned wages during working years,

which is then subsidized as a wage repayment during retirement

social security benefits

widows not secondary earners

Almost three-quarters of older people who live in poverty are

women