Social_Security - – Additions to population of retired...

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Social Security Solvency Problems and Reform
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How it works: Benefits Average Indexed Monthly Earnings Best 35 years Indexed to wage growth (up to age 60) Ten years of work minimum Benefit Formula $0 to $606 90% $606 to $3653 32% $3653 and up 15%
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Benefit Calculation Average worker: AIME = $2438 $606 x 90% + ($2438 - $606) x 32% = $1,131 per month
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Retirement Age Full retirement: 67 . . . (66 for me) Early retirement: 62 Actuarially fair Same expected value of earnings over remaining lifetime Late retirement: up to 70 Adds 8% per year to benefits
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Taxes Employee = 6.2% Employer = 6.2% Up to limit of $102,000 (Also 1.45% in Medicare tax – no limit)
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Overlapping Generations Model Work for 40 years, then retire for 20 year 1940 1960 1980 2000 2020 2040
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Ernest Ackerman
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Rate of Return Productivity Population Additions to labor force Declining birth rate Immigration: legal and illegal
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Unformatted text preview: – Additions to population of retired • Longer life expectancy at 65 years of age • 1950 = 13.9 • 2004 = 18.7 • Coverage • Tax base and rates Benefit Increases • 1950 77% • 1952 12,5% • 1954 13% • 1968 13% • 1970 15% • 1971 10% • 1972 20% Individual Accounts • A plan – Deposit taxes into individual accounts – Invest the balance in financial markets – Tax free accumulation • Details – Restricted choice in investments – Forced purchase of basic annuity Plusses and Minuses • More savings • Legacy debt • Transactions costs • Risk • Political interference • Equity premium Social Security and Savings Solvency • “Bankruptcy” in 2047 • Index the retirement age • Means test benefits • Invest the trust fund in stocks • Index for inflation?...
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This note was uploaded on 10/17/2011 for the course EC 201 taught by Professor Haider during the Spring '10 term at Michigan State University.

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Social_Security - – Additions to population of retired...

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