U.S Social SecurityLuyi Chen, Ying Qin, Siqi Wang

HistorySocial Security ActEnglish colonists (1601 Elizabethan Poor Law )Social trends occurred in 19th centuryIndustrial Revolutionpopulation shift from the countryside to cities longer life expectancy the fading of the extended familyGreat Depression triggered a crisis Passed and signed into law by Roosevelt in 1935Originally only covered the workers

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

BenefitsFirst PaymentBegan in 1942Single, lump-sum refundErnest Ackerman (retired one day after Social Security began)A nickel 15 cents1939 Amendment (1942 to 1940)Monthly payment began 1940Ida May Fuller

How Social Security Financed?Mainly financed by payroll taxes on wages and self-employment income96% of workforce is required to pay Exception: state and local government workersElection workers who earn $1,200 or less per yearMinisters who elect not be coveredFederal workers (pre-1984)College studentsSelf-employed workers (

Continued2006

Current Benefit PolicyMust meet the eligibility requirement to receive the benefits Work at least 10 years40 work credit to be insured Disability: at least 20 work credit during last 40 years of calendar quarters% women insured are increasing

Men vs. Women

Monthly Benefit

Benefits received base on Normal Retirement Age

Current Benefit PolicySpousal and Children:Spousal benefit: Not worked:50% of the husband/wife at NRAHas own retirement benefitUnmarried 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 countriesIndividuals confined to a prison or commit a crimeAliens live outside the US for 6 months or more

Current Situation In CrisisWill not change the system in any way for those born before 19501/3 of Americans older than 65 receive income from SS (90% of total income)Pay-as-you-go system:16 workers support one beneficiaryToday 3.3 workers support one beneficiaryEstimated to continue to decrease

What caused the problem?The decreasing number of workers supporting the systemContinuous developing technologiesImprove living conditions live longer Early retirement ageIndexed to wage growth instead of inflationBenefits grow much faster than the rest of the economy

Suggested SolutionsLimiting benefits for wealthy retireesIndexing benefits to price instead of wagesIncreasing retirement ageChanging the benefit formula to create disincentives for early retirementsIncreasing taxesReform earlier, save much moreThe delay will result in higher tax only

Create Private Retirement AccountsProposed by President Bush Allow younger workers to put part of payroll taxes into personal accountsEntirely voluntaryWide ranges of investment choicesStocks BondsMany morePass on to their children

Results Will not save SS because of risks of investments decisions

Failed Unable to even gain strong support from the Republican-control Congress

QuestionsQ: 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 spendingWiden annual deficits

Private AccountsIncrease Federal Debt and Interest PaymentsPresident 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 2050Senator Lindsey Graham$19.1 trillion in additional debt (equal to 20.8 % of GDP) by 2050Senator 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

Republicans vs. DemocratsRepublicansRepublican Candidate Fred D. Thompson401(K) style proposalAutomatically transfer into the personal accountsMatching $2.50 for every $1 up to $1,000 monthlyAn incentive to attract Americans to save moreInvest in high yield instrumentsIncrease tax revenue through the programRepublican Candidate GiulianiSupport for Bush's failed plan to privatize social security

Republicans vs. DemocratsDemocratsSenator ClintonPrivate accounts would be harmful to AmericansStock market fluctuations, women and family assistance, disabled workers and survivors, federal government debtPropose Universal 401(k) Plan Government match first $1,000Up to $500 for individuals in the $60,000 to $100,000 bracket

Senator ObamaOppose any effort to create private accountsRaise the retirement ageCut benefitsAdjust the cap on the payroll tax

Questions???