Social Security Fall 2006

Social Security Fall 2006 - Social Security Social Security...

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Unformatted text preview: Social Security Social Security The largest and most comprehensive income maintenance program Approximately $347billion/year $25bill TANF, $25bill Food Stamps Federally funded, federal/state administered program Covers ~45 million beneficiaries <64%retirees, ~11% survivors, ~13% spouses & children, ~11% disabled Social Security Social Security pension support: 1997 4.5% of GDP 2050 6.5% of GDP (projected) Social Security Medicare program: 1997 3.5% of GDP 2050 12.8% of GDP (projected) Social Security The Original Act contained two financial support programs for older people: Old Age Survivors Insurance (OASI) Based on prior contributions to the Social security system Also available to spouses and children of retirees Aid for the Aged (AFA) Based on financial need Legislative History 1935 Social Security Act Old Age & Survivors Insurance Social Security Trust Fund Insurance program Aid for the Aged Welfare program 1965 Medicare Separate payroll tax Separate trust fund Legislative History 1972 Supplemental Security Income SSI a means-tested program Aid for the Aged Aid for the Disabled Aid for the Blind Program for Poor and Disabled Largest transfer program in the U.S. Social Security protects against risk of: Poverty & Longevity It is: It’s a transfer program It’s a social insurance program Mixture of annuity and transfer program Distributes income among your lifetime and among cohorts Characteristics of the program Program Implementation Pay-as-you-go intergenerational program Trust fund maintained by mandatory contributions (taxes) Tax rate shared among employees and employers (15.3%) Tax rate applies to all income < $94,200 Benefits distributed by monthly checks mailed to recipient Program Implementation Recipient and spousal benefits Social Security benefits are regarded as income for tax purposes Full benefits at age 65 (67), early retirement (reduced) benefits at age 62 (64) 98% of all retirees receive SS benefits Benefit level based on prior earnings Benefit payments indexed to CPI The Social Security Trust Fund “Ponzi” system with each generation paying for the next Workers pay non-workers Income to SS trust fund via taxes = tax rate X average earnings X number of workers Taxes are REGRESSIVE : lower income workers pay a larger % of their total earnings than higher income workers The Social Security Trust Fund Benefits paid out Benefits amount X number of workers Benefits levels are PROGRESSIVE Higher income individuals get higher actual benefits, but a lower “wage replacement rate” than lower income individuals Low income = ~78% pre-retirement income replacement rate High income = ~35.5% pre-retirement income replacement rate The Social Security Trust Fund Level based on earnings over 35 years work Minimum in 10 years http://www.ssa.gov/pubs/10070.html The Social Security Trust Fund...
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This note was uploaded on 03/30/2009 for the course PAM 2300 taught by Professor Avery,r. during the Fall '06 term at Cornell.

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Social Security Fall 2006 - Social Security Social Security...

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