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Social Security:

Social Security:. Social Security: Details. Social Security/Medicare – Fat Cat of federal budget Provides old age, survivors’ and disability insurance to approximately 45 million Americans

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Social Security:

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  1. Social Security:

  2. Social Security: Details • Social Security/Medicare – Fat Cat of federal budget • Provides old age, survivors’ and disability insurance to approximately 45 million Americans • Workers and their employers fund the system by each paying payroll taxes equivalent to 6.2% of covered wages • Self-employed people pay 12.4% of taxable self-employment income • IRS collects the taxes and deposits the money into government-administered accounts • Old Age and Survivors and Disability Insurance Trust Funds (OASDI)

  3. Social Security: Details • Payroll tax revenues are used to pay benefits to those currently collecting Social Security pensions • “Pay-as-you-go” • Social Security taxes also pay for Medicare, the national health program for the elderly • Patient and hospital care, skilled nursing care

  4. Social Security: Details • Workers who receive enough earnings credits become eligible to receive a Social Security pension when they reach the early retirement age of 62 (or become too disabled to continue working, at any age) • Workers’ dependent spouse and non-adult children can draw monthly survivors’ pensions when the worker dies

  5. Social Security: Details • Social Security is a defined-benefit pension program • Each pension is based on the worker’s average career earnings and on the age when the worker or worker’s dependents first obtain the pension • Social Security benefit formula • Benefit formula is skewed in favor of workers with low career earnings, those who face high risk of becoming totally disabled, and married couples with only one wage-earner • Others receive less favorable treatment (high income, unmarried and childless, dual-income married couples)

  6. The End is Near… • When Social Security was created in 1935, the average life span was 61.7 years • In 1995, the average life span was 75.8 years • Those who turned 60 in 1939-40 were expected to live for another 15.9 years on average • Those who turned 60 in 1995 were expected to live for another 21 years

  7. The End is Near… • In 1999, the system took in $526.6 billion and paid out $385.8 billion • The Social Security trust funds are expected to cover benefits until 2037 • 2015: Benefit payments will begin to exceed income • 2025: Interest income on bonds will expire • 2037: Trust funds will be completely exhausted • Taxes will only be able to cover about 75% of benefit obligations

  8. Budget Deficits/Surpluses

  9. Possible Reforms • Increase retirement age from 65 to 70 • Decrease Social Security benefits • Increase the payroll tax for Social Security • Allow government to invest Social Security surplus in the private market • Currently the government must invest surplus in government securities

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