President Bush wants to add a personal investment component to the U.S. Social Security system. Under a Bush-style reform plan, workers would be able to contribute a portion of their payroll taxes into personal retirement accounts, which would pay a gradually increasing part of their retirement benefits.
The present value of Social Security's long-term funding gap is $11 trillion in 2004 dollars. That means we would need $11 trillion in the bank today, earning the government's borrowing rate, to eliminate all of the program's future debt. Another way to reduce this debt is to reduce Social Security's obligations.
In 2011, the first group of baby boomers will reach the age of 65. When the last of that generation retires in 2032, 77 million of them will have ceased working and paying taxes and will have begun receiving taxpayer-funded health care and pension benefits.
America’s entitlement programs for senior citizens are on an unsustainable course. Unless changes are made soon, we face the prospect of exorbitant tax rates or severe benefit cuts.
Chile adopted a new pension system featuring privately managed individual accounts in 1981. The system gives us an opportunity, based on more than 20 years of experience, to examine how pensioners and pension providers react when individual accounts replace government-run, defined benefit pension systems, and how various regulations shape these reactions. This paper focuses on the payout stage.
As the baby boomers near retirement, defects in the nation's private pension system are becoming obvious. Only about half of workers contribute to an employer-sponsored pension plan in any given year, and Individual Retirement Account (IRA) participation rates are substantially lower. Among workers with tax-preferred retirement saving plans, few make the maximum allowable contribution. And despite the many private savings incentives, many households approach retirement with meager funds.
The entire developed world stands at the fore of a phenomenal demographic transition. Over the next 30 years, the number of elderly in the U.S., the EU, and Japan will more than double. At the same time, the number of workers available to pay the elderly their government-guaranteed pension and health care benefits will rise by less than 10 percent. With no change in policy, paying the elderly their promised benefits will, it appears, require a doubling or more of payroll taxes.
In just 15 years, workers' Social Security payroll taxes will fall short of what is needed to pay promised benefits, and the system will require increasing cash transfers from general revenues. One way to begin alleviating the shortfall is to allow workers to set.
The 2003 annual reports for Social Security and Medicare highlight the financial burdens these programs will create for future generations. If they are not reformed in a timely and responsible way, Social Security and Medicare will consume an ever-increasing portion of workers' incomes as the government seeks to keep its promises to future retirees.
Social Security reform is one of the nation's most prominent domestic policy issues. A common feature of many leading Social Security reform plans is that they would prefund benefits by integrating personal retirement accounts into the current system.
About 31 million Americans live in households with incomes below the poverty level, according to the latest U.S. Census data. Poverty is more than a lack of income. It is also the consequence of specific behaviors and decisions.
President Bush's bipartisan Social Security reform commission delivered its final recommendations for repairing Social Security in December 2001.
Social Security reform is one of the most prominent domestic policy issues in the United States. The U.S. is not alone in facing the daunting challenges posed by its retirement security program.
All Americans would benefit from Social Security reform, but African Americans would benefit the most. African Americans rely more heavily than other demographic groups on Social Security for a secure retirement; thus they stand to lose the most from an unreformed system.
The payroll tax that funds Social Security, Medicare and Disability Insurance, called FICA, is already the largest tax most American families pay. In the future, it will claim an even greater share of Americans' incomes. From its current level of 15.3 percent (combining the employer and employee shares), the payroll tax will need to rise above 25 percent of workers' incomes by the middle of the century in order to pay benefits to today's teenagers when they retire.
Is Social Security in financial trouble? If you believe a press release issued by the Trustees of the Social Security and Medicare Trust Funds, the answer is no. If you go to the fine print of their annual report, however, the answer is a resounding yes.
President Bush's Commission to Strengthen Social Security moved the Social Security reform discussion forward. However, despite the commission's hard work, its findings are not the final word in the debate. As Congress takes up the discussion, it should consider the "hybrid" reform plan proposed by the National Center for Policy Analysis. The NCPA plan combines the most attractive features of major plans developed by both Republicans and Democrats over the past several years. It includes no benefit cuts for those who contribute to a personal retirement account (PRA) and no tax increases.
President Bush created the Commission to Strengthen Social Security in May 2001 to develop a plan to reform the nation's retirement system. The commission's final report to the White House includes three broad frameworks for reform and leaves it up to Congress and the administration to develop the details.
Now that President Bush's Commission to Strengthen Social Security is preparing its report for release later this year, the debate on the wisdom of investing in the stock market is again at center stage. As we choose which option, if any, will replace Social Security's present financing, the behavior of our stock market over the last three-quarters of a century clearly suggests that it should be one of the considered choices.
In less than a decade, members of the baby boom generation will begin reaching their retirement years. At that time, 77 million people will begin to leave the labor market. They will cease to be taxpayers and begin to receive Social Security and Medicare benefits. This will mark the beginning of an enormous conflict over resources. Indeed, it is probably no exaggeration to say that we are approaching generational warfare.
President Bush has appointed a bipartisan commission to study reform of Social Security. But the response to the commission's first report reveals that most Americans – and many members of Congress – do not understand how Social Security works.
There have been a number of proposals to invest the Social Security surplus in the financial markets. Some proposals call for the government to do the investing. Others would have workers deposit part of their payroll tax payments in individual accounts that would be invested in assets, such as stocks and bonds. Are such investments inherently risky?
Social Security and Medicare are in trouble. By 2016, both programs will begin paying out more in benefits than they receive in payroll taxes. And the government will no longer be able to maintain full benefit payments to retirees at current tax rates. These programs will consume an ever-increasing portion of workers' incomes if the government is to keep its promises.
This paper considers Social Security as an investment for different classes of workers based on their level of education. Why education, rather than income? Everyone's income will vary a lot over the course of a 40- to 45-year work life. As a result, level of education is a better predictor of expected Social Security taxes and benefits than current wages.
Albert Einstein called it the greatest mathematical discovery of all time. Benjamin Franklin supposedly said it was the eighth wonder of the world. MasterCard, Visa and American Express use it – with devastating effects for unwary cardholders. The tool is compounding, and if harnessed correctly, it can save Social Security while ensuring a safe, comfortable and secure retirement for even the lowest-income Americans.