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U.S Social Security

U.S Social Security. Luyi Chen, Ying Qin, Siqi Wang. History. Social Security Act English colonists (1601 Elizabethan Poor Law ) Social trends occurred in 19th century Industrial Revolution population shift from the countryside to cities longer life expectancy

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U.S Social Security

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  1. U.S Social Security Luyi Chen, Ying Qin, SiqiWang

  2. History • Social Security Act • English colonists (1601 Elizabethan Poor Law ) • Social trends occurred in 19th century • Industrial Revolution • population shift from the countryside to cities • longer life expectancy • the fading of the extended family • Great Depression triggered a crisis • Passed and signed into law by Roosevelt in 1935 • Originally only covered the workers

  3. Key Dates for Social Security Act • Adjustments • Coverage expansion for dependents and survivors benefits in 1939 • Cost of living adjustments in 1950 • Lowering retirement age to 62 in 1961 • Benefits are taxed first time in 1983

  4. Benefits • First Payment • Began in 1942 • Single, lump-sum refund • Ernest Ackerman (retired one day after Social Security began) • A nickel 15 cents • 1939 Amendment (1942 to 1940) • Monthly payment began 1940 • Ida May Fuller

  5. How Social Security Financed? • Mainly financed by payroll taxes on wages and self-employment income • 96% of workforce is required to pay • Exception: • state and local government workers • Election workers who earn $1,200 or less per year • Ministers who elect not be covered • Federal workers (pre-1984) • College students • Self-employed workers (<$400 per year) • Funds collected 744.9 Billion in revenues • 84% from payroll taxes • 2% from taxes on SS benefits • Remaining from interest earned on the government bonds

  6. Continued…2006

  7. Current Benefit Policy • Must meet the eligibility requirement to receive the benefits • Work at least 10 years • 40 work credit to be insured • Disability: at least 20 work credit during last 40 years of calendar quarters • % women insured are increasing

  8. Men vs. Women

  9. Monthly Benefit

  10. Benefits received base on Normal Retirement Age

  11. Current Benefit Policy • Spousal and Children: • Spousal benefit: • Not worked:50% of the husband/wife at NRA • Has own retirement benefit • Unmarried children under 18 or disabled before 22 or between 18 and 19 and a full-time student can receive benefit (one-half of full retirement benefit amount) • Limit: 150 to 180 percent of your retirement benefit • Prohibits payments to: • Individuals residing in certain countries • Individuals confined to a prison or commit a crime • Aliens live outside the US for 6 months or more

  12. Current Situation • “ In Crisis” • Will not change the system in any way for those born before 1950 • 1/3 of Americans older than 65 receive income from SS (90% of total income) • Pay-as-you-go system: • 16 workers support one beneficiary • Today 3.3 workers support one beneficiary • Estimated to continue to decrease

  13. What caused the problem? • The decreasing number of workers supporting the system • Continuous developing technologies • Improve living conditions live longer • Early retirement age • Indexed to wage growth instead of inflation • Benefits grow much faster than the rest of the economy

  14. Suggested Solutions • Limiting benefits for wealthy retirees • Indexing benefits to price instead of wages • Increasing retirement age • Changing the benefit formula to create disincentives for early retirements • Increasing taxes • Reform earlier, save much more • The delay will result in higher tax only

  15. Create Private Retirement Accounts • Proposed by President Bush • Allow younger workers to put part of payroll taxes into personal accounts • Entirely voluntary • Wide ranges of investment choices • Stocks • Bonds • Many more… • Pass on to their children

  16. Results • Will not save SS because of risks of investments decisions • Failed • Unable to even gain strong support from the Republican-control Congress

  17. Questions • Q: Will the new system continue provide benefit for nonworking spouses, people with intermittent work histories, workers with low income, and people with disabilities? • Q: Higher risk because of investment decisions? • Q: Create Federal Debt? • Increase government spending • Widen annual deficits

  18. Private Accounts • Increase Federal Debt and Interest Payments • President Bush • $17.7 trillion in additional debt (equal to 19.3 % of GDP) by 2050 • Robert Pozen • $3.5 trillion in additional debt (equal to 3.8 % of GDP) by 2050 • Senator Lindsey Graham • $19.1 trillion in additional debt (equal to 20.8 % of GDP) by 2050 • Senator Chuck Hagel • $24.2 trillion in additional debt (equal to 26.5 % of GDP) by 2050 • Senator John Sununu and Representative Paul Ryan • $85.8 trillion in additional debt (equal to 93.7 % of GDP) by 2050

  19. Republicans vs. Democrats • Republicans • Republican Candidate Fred D. Thompson • 401(K) style proposal • Automatically transfer into the personal accounts • Matching $2.50 for every $1 up to $1,000 monthly • An incentive to attract Americans to save more • Invest in high yield instruments • Increase tax revenue through the program • Republican Candidate Giuliani • Support for Bush's failed plan to privatize social security

  20. Republicans vs. Democrats • Democrats • Senator Clinton • Private accounts would be harmful to Americans • Stock market fluctuations, women and family assistance, disabled workers and survivors, federal government debt • Propose Universal 401(k) Plan • Government match first $1,000 • Up to $500 for individuals in the $60,000 to $100,000 bracket • Senator Obama • Oppose any effort to create private accounts • Raise the retirement age • Cut benefits • Adjust the cap on the payroll tax

  21. Questions???

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