Social Security

• Origins:– New Deal

• Contributors:– Employee: 6.2%– Employer: 6.2%– Taxable Maximum: $90,000– Contribute for 10 years to receive benefits

Social Security

• Recipients:– 62.8%: Retired– 18.4%: Survivor Benefits– 13%: Disabled– 5.8%: Non-working spouses

Social Security Trust Fund

• Surplus goes into trust fund• 2005: 1.7 trillion in trust fund

– $155 billion added in 2005

• Govt borrows $150 billion a year (IOUs in Fund)

PROBLEMS

• Baby Boomers• Living longer• Fewer Child Births

Americans are living longer and having fewer children

Consequently, fewer workers are available

to support each Social Security recipient

1960: 5.1 to 1 Today: 3.3 to 1 2040: 2.1 to 1

Source: Social Security Administration, April 2007

Benefits promised far exceed dedicated

tax revenues

10

12

14

16

18

20

2007 2013 2019 2025 2031 2037 2043 2049 2055 2061 2067 2073 2079 2085

Source: Social Security Trustees’ Report—April 2007 (Intermediate Projections)

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Social Security

Cash Deficits

Problems

• 2017: Payouts exceed income– Need to tap into Trust Fund– Govt. borrows $150 billion a year

• 2041/2052: Trust Fund Depleted– Annual collections only pay for 74% of

benefits

Proposed Solutions

• Raise Max. level from $90,000 to $140,000.– Lower shortfall by 43%

• Raise tax by ½ %.– Lower shortfall by 24%

• Raise Age for benefits from 67 to 70.– Lower shortfall by 38%

• Reduce Benefits by 5%– Lower shortfall by 26%

• Lower benefits for high-wage workers.– Lower shortfall by 11%

• Put estate tax into SS Fund.– Lower shortfall by 25%

www.aarp.org