(PF) Chapter 13 misc.
What did the social security office say about the future of the programs?
"Both programs (i.e.; Social Security and Medicare) will experience cost growth substantially in excess of GDP growth through the mid-2030s due to rapid population aging caused by the large baby-boom generation entering retirement and lower-birth-rate generations entering employment..."
The OMB explained that these trust fund "balances" are nothing more than a ________. "They do not consist of real economic assets that can be drawn down in the future to fund benefits."
"bookkeeping" device
When did Social Security start?
1935, at the height of the Great Depression
What was the social security amendment of 1983?
In 1983, Congress amended the program to allow for the accumulation of money to pay for the soon-to-be-retiring baby boomers. Payroll taxes were also increased at that time. Due to higher tax withholding, surpluses quickly emerged and, as some would say, Congress proceeded to "raid" the trust fund.
Who said this, "the trust fund is solvent until 2037. Therefore, Social Security is now off the table in debt-reduction talks."?
Office of Management and Budget Director Jack Lew
What is an example of an unfunded plan?
Social Security
What is the main point from the OMB about trust funds?
The existence of large trust fund balances, therefore, does not, by itself, have any impact on the government's ability to pay benefits."
What are "special issue bonds"?
When your FICA tax is taken out of your paycheck, most goes out immediately to pay current retirees, and the rest (say, $100) goes to the U.S. Treasury - and is spent. On roads, bridges, national defense, public television, whatever - spent, gone. In return for that $100, the Treasury sends the Social Security Administration a piece of paper that says: IOU $100. There are countless such pieces of paper in the lockbox. They are called "special issue" bonds.
What do you call a payment that lasts until the recipient's death?
annuity payment
What was Senator Brown's answer to "what actions he favored to protect the solvency of the program" ?
he believes that we can improve the solvency of Social Security by asking the wealthiest Americans to contribute to the program the same share of their income as the middle class."
What are the "big 3" entitlement programs?
medicare, medicaid, and social security
Who is the Social Security plan open to?
most people over the age of 62
Social Security program represents a liability to the Treasury which must come from where?
new taxes, spending cuts, or additional borrowing
The amount of an annuity payment for Social Security is a function of what?
of the recipient's average lifetime earnings, where each month's earnings are expressed in today's dollars by inflating their value for increases in the wage level since the earnings occurred.
Unfunded plans are often referred to as what?
pay-as-you-go process
What is an example of a funded plan?
private pension plans
Definition of "back-of-an-envelope solvable"
raise the retirement age, tweak the indexing formulas (from wage inflation to price inflation), and means test so that Warren Buffet's checks gets redirected to a senior in need
What is an unfunded plan?
refers to retirement plans in which payments collected from today's workers go directly to today's retirees, instead of being invested in order to pay future benefits
What is a funded plan?
refers to retirement plans in which today's savings are invested in various assets in order to pay future benefits.
The ratio of workers to retirees is ______ year by year. Instead of Social Security producing annual surpluses that ______ the federal deficit, it is now producing shortfalls that increase the federal deficit - $37 billion in 2010. It will only get worse as the baby boomers retire...
shrinking // reduce
Out of the "big 3" entitlement programs, which is the most solvable?
social security
What is the 35-year average of real monthly earnings (used to compute annuity payments) called?
the Average Indexed Monthly Earnings (AIME)
What are the promises of a funded private pension plan backed by?
the actual assets held by that plan
How are Social Security (annuity payments) payments calculated?
the gov't averages a person's earnings over that person's 35 highest earning years (AIME). the government then pays you a percentage of that monthly earnings (AIME)
What does it mean to have a so-called trust fund with no "real economic assets."?
the paper IOUs are nothing more than claims on the Treasury [i.e., promises] that, when redeemed [when you retire and are awaiting your check], will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures."
What are the promises of an unfunded social security plan backed by?
the policies of the government
From the current Social Security System, who wins and who loses?
the poor win, and the rich lose
When polled, what did 2/3 of young people (18-34) say about their belief in social security?
they believe that social security will not provide them with significant income by the time they retire
How long does will a person receive Social Security checks?
until they die --> if there is a surviving spouse, he/she receives a payment until his/her own death.
How is Social Security financed?
workers pay a tax on their earnings, and the money from this tax is deposited into a trust fund that is invested in government bonds. Checks written on this trust fund are paid to those who enroll in the Social Security program, which is open to most people over the age of 62.