2centsworth
03-21-2005, 12:27 PM
1. MANY BENEFICIARIES - One out of every 6 Americans currently collects a monthly Social Security check either as a retiree, a disabled individual, or a survivor of a recipient (source: SSA, Census Bureau).
2. MORE IN THAN OUT - Social Security has collected more in taxes than it has paid out in benefits in 57 out of 68 years since it began in January 1937 (note the law that started Social Security was signed by FDR on 8/14/35). Social Security is generating annual surpluses (i.e., taxes collected in excess of benefits paid out) of approximately $150 billion a year. The trust fund has a balance of $1.7 trillion today (source: SSA).
3. FUTURE PROBLEMS - Social Security will continue to generate an annual surplus (i.e., taxes collected in excess of benefits paid out) until the year 2018 when the annual benefits paid will exceed taxes collected. The $1.7 trillion trust fund of today will be zero in 2042 unless changes are made to the system. If the trust fund went to zero then individuals receiving Social Security checks would begin to receive only 73% of their currently promised benefits in 2042. Actuaries have assumed future GDP growth of +1.9% per year in their calculations (source: SSA).
4. FUTURE PROBLEMS, JUST LATER - The Congressional Budget Office believes Social Security will be able to pay out full benefits (using current tax rates) through 2052 (10 years later than what Social Security has projected) and only then would the system be forced to cut benefits to 78% of their current projected levels (source: CBO).
5. THINGS HAVE GOTTEN BETTER – Projections made in 1995 had the trust fund at zero by 2030 (source: SSA).
6. ROOT OF THE PROBLEM - There were 5 workers paying taxes into Social Security for every 1 recipient in 1960. The ratio is 3.3 workers per recipient today. By the year 2040 the ratio will be 2 to 1 (source: SSA).
7. LONG-TERM PROBLEM - The projected shortfall today (i.e., a present value number) between taxes anticipated to be collected and benefits to be paid out over the next 75 years is $3.7 trillion according to the 2004 annual report of the Social Security trustees. The OMB has projected the shortfall to be $2.6 trillion (source: SSA, OMB).
8. ONE POTENTIAL SOLUTION - If the Social Security wage base is raised to $140,000 (from its current level of $90,000) over the next 10 years and the program’s full retirement age is increased from 67 to 70 by 2083, 81% of the anticipated $3.7 trillion shortfall would be eliminated (source: AARP).
9. BUSH’S PLAN - President Bush wants to have private accounts available as an alternative within the Social Security system in 2009. Individuals born after 1949 would have the choice of using private accounts but would not be required to do so. People born before 1950 are not impacted by the proposed changes (source: White House).
10. PRIVATE ACCOUNT DETAILS - An individual employee would be able to invest a maximum 4% of wages (of the 12.4% he/she currently pays along with his/her employer’s contribution) up to $1,000 annually into a private savings account in which the individual would pick from 5 mutual funds to invest in (source: White House).
11. ANTICIPATED EXPENSES - The administrative expenses to be incurred for the management of the private accounts is expected to be 30 basis points, or $3 annually per $1,000 market value (source: WSJ).
12. WOULD I COME OUT AHEAD? - The White House projects that if an individual is able to achieve at least a +3.0% real rate of return (i.e., after inflation), then the combination of the private account plus Social Security beats the current Social Security arrangement. Social Security actuaries project that a +4.93% real rate of return can be achieved with a 60% stock, 40% bond allocation (source: SSA).
13. NUMBERS BEHIND THE PROJECTION - Social Security actuaries have based their private account calculations (the projected +4.93% ROR) upon the assumption that stocks will generate a real (after inflation) return of +6.5%, government bonds will return +3.0% and corporate bonds will return +3.5% (source: SSA).
14. COST TO CHANGE - A concern of those who oppose private accounts within Social Security are the anticipated transition costs, estimated to be $4.9 trillion over 20 years by the Democrats, far more than the White House projection of a $754 billion cost over 10 years (source: WSJ, Treasury Department, Washington Post).
15. SHORT-TERM PAIN, LONG-TERM GAIN - The Republicans believe that once the private accounts are in place, $10 trillion in future Social Security obligations will be eliminated (source: National Review).
2. MORE IN THAN OUT - Social Security has collected more in taxes than it has paid out in benefits in 57 out of 68 years since it began in January 1937 (note the law that started Social Security was signed by FDR on 8/14/35). Social Security is generating annual surpluses (i.e., taxes collected in excess of benefits paid out) of approximately $150 billion a year. The trust fund has a balance of $1.7 trillion today (source: SSA).
3. FUTURE PROBLEMS - Social Security will continue to generate an annual surplus (i.e., taxes collected in excess of benefits paid out) until the year 2018 when the annual benefits paid will exceed taxes collected. The $1.7 trillion trust fund of today will be zero in 2042 unless changes are made to the system. If the trust fund went to zero then individuals receiving Social Security checks would begin to receive only 73% of their currently promised benefits in 2042. Actuaries have assumed future GDP growth of +1.9% per year in their calculations (source: SSA).
4. FUTURE PROBLEMS, JUST LATER - The Congressional Budget Office believes Social Security will be able to pay out full benefits (using current tax rates) through 2052 (10 years later than what Social Security has projected) and only then would the system be forced to cut benefits to 78% of their current projected levels (source: CBO).
5. THINGS HAVE GOTTEN BETTER – Projections made in 1995 had the trust fund at zero by 2030 (source: SSA).
6. ROOT OF THE PROBLEM - There were 5 workers paying taxes into Social Security for every 1 recipient in 1960. The ratio is 3.3 workers per recipient today. By the year 2040 the ratio will be 2 to 1 (source: SSA).
7. LONG-TERM PROBLEM - The projected shortfall today (i.e., a present value number) between taxes anticipated to be collected and benefits to be paid out over the next 75 years is $3.7 trillion according to the 2004 annual report of the Social Security trustees. The OMB has projected the shortfall to be $2.6 trillion (source: SSA, OMB).
8. ONE POTENTIAL SOLUTION - If the Social Security wage base is raised to $140,000 (from its current level of $90,000) over the next 10 years and the program’s full retirement age is increased from 67 to 70 by 2083, 81% of the anticipated $3.7 trillion shortfall would be eliminated (source: AARP).
9. BUSH’S PLAN - President Bush wants to have private accounts available as an alternative within the Social Security system in 2009. Individuals born after 1949 would have the choice of using private accounts but would not be required to do so. People born before 1950 are not impacted by the proposed changes (source: White House).
10. PRIVATE ACCOUNT DETAILS - An individual employee would be able to invest a maximum 4% of wages (of the 12.4% he/she currently pays along with his/her employer’s contribution) up to $1,000 annually into a private savings account in which the individual would pick from 5 mutual funds to invest in (source: White House).
11. ANTICIPATED EXPENSES - The administrative expenses to be incurred for the management of the private accounts is expected to be 30 basis points, or $3 annually per $1,000 market value (source: WSJ).
12. WOULD I COME OUT AHEAD? - The White House projects that if an individual is able to achieve at least a +3.0% real rate of return (i.e., after inflation), then the combination of the private account plus Social Security beats the current Social Security arrangement. Social Security actuaries project that a +4.93% real rate of return can be achieved with a 60% stock, 40% bond allocation (source: SSA).
13. NUMBERS BEHIND THE PROJECTION - Social Security actuaries have based their private account calculations (the projected +4.93% ROR) upon the assumption that stocks will generate a real (after inflation) return of +6.5%, government bonds will return +3.0% and corporate bonds will return +3.5% (source: SSA).
14. COST TO CHANGE - A concern of those who oppose private accounts within Social Security are the anticipated transition costs, estimated to be $4.9 trillion over 20 years by the Democrats, far more than the White House projection of a $754 billion cost over 10 years (source: WSJ, Treasury Department, Washington Post).
15. SHORT-TERM PAIN, LONG-TERM GAIN - The Republicans believe that once the private accounts are in place, $10 trillion in future Social Security obligations will be eliminated (source: National Review).