Social Security Erika Benitez, Blake Gonsalves, Kyle Goto, Hung Nguyen, & Sophy Om

Brief Overview of Social Security Proposed programs prior to Social Security –Share our Wealth Plan –Townshed Plan –Ham & Eggs –Bigelow Plan –EPIC Plan –General Welfare Federation of America –Technocracy –Social Insurance History of Social Security How Social Security started 1939 Amendment 1950 Amendment Three programs of Social Security –Old Age and Survivors Benefit –Disability Insurance –Supplemental Security Income –Qualification of these three programs –Amount of Benefits

Graphical Analysis The table shows a rough estimate of the benefits you will receive when you are retired. You must have at least 10 years of salary to be eligible for the benefits. AgeOfRetirement Income Less than $35,000 a year $4,786$5,925$6,381$6,837$7,384$7,931$8,478 $35,000 to $55,000 a year $7,896$9,776$10,528$11,280$12,182$13,085$13,987 More than $55,000 a year $11,131$13,781$14,841$15,901$17,173$18,445$19,717

Social Security Benefits Maximum Social Security Benefit : Worker Retiring at Full Retirement Age in 2004 is $ 1,825/mo. (age 65 and 4 months, born in 1939) –An individual with wages equal to or larger than $87,000 would contribute $5, to the OASDI program in 2004, and the employer would contribute the same amount All Disabled Workers estimated for 2004 is $861/mo SSI Benefits for 2004 –Individual = $564/mo –Couple = $846/mo All Benefits are accounted for 2.1% COLA for 2004

HOW ECONOMIC AND DEMOGRAPHIC FACTORS AFFECT SOCIAL SECURITY'S FINANCES The solvency of Social Security's Old-Age and Survivors Insurance and Disability Insurance (OASDI) system is determined by three sets of factors The solvency of Social Security's Old-Age and Survivors Insurance and Disability Insurance (OASDI) system is determined by three sets of factors –Demographic –Economic –Political

Major Demographic Assumptions Major Demographics –Fertility –Immigration –Mortality –Disability

Major Economic Assumptions –Wage Increases –Consumer Price Index (CPI) –Increases in Real Wages –Interest Rates –Labor Force Participation Rates –Unemployment –GDP Growth

Major Political Assumption Laws passed by Congress that define the structure of Social Security taxes and benefits

Problems with Social Security “Ponzi Scheme” – Later “investors”, taxpayers, pay back earlier, retired, taxpayer benefits. Consumer Price Index –Overstating the increase in the cost-of-living will increase the national debt $1 trillion greater in Birth rate –With a declining birth rate the number of SS recipients is increasing For more info…

Presidential Candidates Bio Three major party candidates: –Bush (Republican) –Kerry (Democrat) –Nader (Green Party) FOR MORE INFO...

Ralph Nader’s Plan Social Security is solid Fears loss in privatization Replaces certainty with risk

John Kerry’s Plan No Privatization No Cutting Benefits No Extending the Retirement Age No Solutions?

George W. Bush’s Plan Personal Retirement accounts for young workers Move to Privatization Raise Retirement Age Reduce Benefits

Privatization Personal Property Possibility of earning more Market never has lost over a 20 year span

Problems with Privatization Corporation cut Certainty replaced with risk Market crash or scandal Returns could be less than the projected 74% loss Transition cost

Raising Payroll Taxes (Peter Orzag) Raise payroll taxes to 15% by 2072 Avoid transaction and commission costs 9% reduction of benefits

Changing Indexes (Greenspan) Use “Chained” CPI 4% reduction in benefits over 10 years

Changing expected benefits Use CPI to calculate expected benefits 41% reduction in benefits for those born in 2002

Our Solution to Social Security Increase payroll taxes 1% over next 5 years Buy more time to do further studies into privatization

Going Private Privatize early as possible (time is a friend of interest) Allow an individual to go fully private instead of partial Gov and SEC work together to find a brokerage house Must meet certain strict criteria Determine type of investments

Questions Any Questions?