SOCIAL SECURITY

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SOCIAL SECURITY

• Lindsay Nolan
• Marcus Smith
• Amy Huff
• Soheil Zamanianpour
• Erik Sordahl

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History of Social Security
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Pre-Social Security

• 1862 Civil War Pension program
• 1896 New Jersey Teachers Pension Plan
• Oldest retirement plan
• 1920 New York State and City retirement system
  for employees
• Civil Services Retirement System set up for
• Federal employees.

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Depression Causes Pension Proposals

• Estimates state that in 1934 over ½ of the
  elderly in America lacked sufficient funds to be
  self-supporting.
• 1928 Everyman a King
• Huey Long Governor of Louisiana
• 1930s Ham Eggs
• Robert Noble
• 1933 End Poverty in California Plan
• Upton Sinclair

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Pension Proposals

• 1933 Townsend Plan
• Francis E. Townsend from Long Beach, CA
• Government provide a pension of 200 per month to
  every citizen age 60 and older.
• Pension funded by 2 of national sales tax.
• 3 Requirements
• Person had to be retired
• Their past life is free from habitual
  criminality
• The money had to be spent within the US by the
  pensioner within 30 days of receipt.

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Pension Proposals

• Social Insurance Movement
• Tradition began in Europe
• 1st Adopted by Germany
• Social Insurance emphasized government sponsored
  efforts to provide for economic security of its
  citizens.

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Social Security Act

• 1934 Committee on Economic Security
• Committee was instructed to study the entire
  problem of economic insecurity and to make
  recommendations.
• 1935 Social Security Act
• Included unemployment insurance, old-age
  assistance, aid to dependent children and grants
  to the states to provide various forms of medical
  care.

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Social Security Act

• Major provisions of the act
• Title I Grants to states for old-age assistance
• Title II Federal old-age benefits.
• Social Security Board
• Contains 3 members
• Social Security numbers
• John David Sweeny Jr. was the first social
  security number account

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Social Security Act

• First payments
• Ernest Ackerman-lump sum of 17 cents.
• 1939 Amendments
• Added payments to spouse and minor of retired
  workers

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Social Security Act

• Milton Friedman
• Claims Division of SSA
• Started working in November of 1939.
• Believes that Social Security should become
  privatized.

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Social Security Act

• 1950 Amendments
• Increased benefits for existing beneficiaries
• COLAs-cost of living allowances
• Disability-1954 President Eisenhower
• Medicare and other changes
• Amendments of 1961 lowered the age at which men
  are first eligible for old-age insurance
• Medicare bill signed on July 30th, 1965 by
  President Lyndon Johnson

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Social Security Act

• SSI-Social Security Income
• 1977 Amendment was to address the financing of
  the program
• Disability in the 1980s
• 1984 congress passed the Disability Benefits
  Reform Act
• Social Security reform in the Bush Administration
• Reform of Social Security and Medicare.

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Benefits and Administration
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Social Security Components

• Old Age retirement- a compulsory insurance
  program designed for retirement benefits for
  people who pay into the program.
• Survivors benefits- paid to the dependents of a
  deceased worker who is fully insured.
• Disability Benefits- paid to disabled workers who
  meet certain eligibility requirements.

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Qualifying For Old-Age Benefits

• Insured is eligible with 40 credits paid in to
  Social Security
• Or earning 6 credits in the last 13 calendar
  quarters

• PIA Primary Insurance Amount. The monthly amount
  of benefits received.
• AIME Average Indexed Monthly Earnings.

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Determining Old-Age Insured Eligibility
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Qualifying For Old-Age Benefits

• Early retirement-
• Up to 4 years before Full Retirement with
  penalty
• 3 years early 20 of benefits as opposed to 36
• 4 years early a 5 penalty each month
• Full Retirement
• Delayed Retirement-
• 4 years after reaching Full Retirement receiving
  up to 8 extra for delay

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www.ssa.gov
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Disability Benefits

• Disability Compared to Workers Comp. is much more
  strict for qualifying
• You must meet SSAs definition of disabled
• You have to go through a 5 month waiting period
• The injury will either cause disability for at
  least 1year or result in cause of death

• Insured must be working to qualify for disability
  benefits.
• With disability comes 100 of primary insurance

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Survivor Benefits

• Paid to dependents of deceased workers
• Surviving Spouses older than 60
• Disabled Children
• Unmarried Children 18 or younger
• Disabled Spouse 50
• Dependent Parents 62 or older
• 255.00 death benefit to Beneficiary
• Maximum paid out benefits 2119.70 as of 2003

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Social Security and The Wheel

• Taxation
• 25,000-34,000 up to 50 benefits taxed
• 34,000 up to 85 benefits taxed
• Working with IRS designed form to determine the
  SSA amount of benefits taxed
• Inflation (AIMEs adjustment)
• Legal Requirements

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Social Security Today
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Todays Beneficiaries

• 46 Million beneficiaries accounted for in 2003
  OASDI Trustees Annual Report
• 32 Million retired workers their dependents
• 7 Million survivors of deceased workers
• 7 Million disabled workers their dependents
• Average monthly benefits of 863.24
• 922.08 for Retired workers, 444.20 for their
  dependents
• 563.79 to 887.74 for Survivors
• 723.15 for Disabled persons
• 411.87 to 567.04 for Children
• (dependents of retired/deceased/disabled
  workers)

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Todays Beneficiaries

• Number of Beneficiaries by Fiscal Year (In
  Millions)
• 1994 1995 1996 1997 1998 1999 2000
  2001 2002 2003
• OASI 37.2 37.5 37.6 37.8 37.9
  38.0 38.7 38.9 39.2 39.4
• DI 5.5 5.8 6.0 6.1 6.3
  6.5 6.6 6.8 7.1 7.5
• SSI/OASDI1 2.5 2.5 2.4 2.4
  2.4 2.4 2.4 2.4 2.4 2.5
• SSI only 3.7 4.0 4.2 4.2 4.2
  4.2 4.2 4.3 4.4 4.4
• 1. Includes individuals receiving benefits from
  more than one program.

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Todays Beneficiaries

• Total annual benefits paid, by type of benefit
  and trust fund, 2003 (Amounts in millions)
• CASH BENEFITS SERVICE (HOSPITAL) REHAB
  SERVICES
• 316,835 161,900 40
• 332,580 181,340 39
• 347,088 197,230 31
• 361,970 210,519 53
• 374,990 210,115 51
• 385,768 209,490 68
• 407,644 217,351 63
• 431,947 240,846 60
• 453,815 260,913 75
• 470,798 275,909 47

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Todays Beneficiaries

• Todays beneficiaries treat Social Security as a
  sort of Financial Safety Net
• Workers rely solely on these benefits for their
• future financial needs
• Social Security treated as most important form of
  savings
• and most valuable financial asset

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Todays Beneficiaries
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Todays Beneficiaries
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The Unified Budget

• The Unified Budget, or Whole Budget, is a
  combination of Trust Funds and Federal Funds
• Trust Funds include taxes and revenues received
  for Social Security, Civil Service/Military
  retirement, Medicare, etc.
• Federal Funds include all other revenues
• By combining the two, or unifying them, the
  surpluses received by Social Security can be
  used to conceal part of the federal funds
  deficit.
• The Unified Budget has created the Pay-As-You-Go
  basis that Social Security operates on
• The required annuity payments have not been made
  to the Trust Funds which will later provide
  benefits for todays workers
• Todays struggling young workers are actually
  financing the retirement of aging Baby Boomers
  high standard of living

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Strategic Plan of the Social Security
Administration

• Advance the economic security of the
• nations people through compassionate and
  vigilant leadership in shaping and managing
• Americas social security programs.

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Strategic Plan of theSocial Security
Administration

• GOALS
• Deliver high-quality, citizen-centered service
• Ensure superior stewardship of Social Security
  programs and resources
• 3) Achieve sustainable solvency and ensure Social
  Security programs meet the needs of current and
  future generations
• 4) Manage and align staff to support the
  Administrations mission.

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Problems With The Social Security System
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Retiring Baby Boomers

• 75 million baby-boomers will retire in coming
  years
• The number of retirees collecting benefits in 20
  years is expected to increase 60
• The number of workers paying taxes to support
  those benefits is projected to increase a mere
  14
• SSA Estimated contribution to Social Security
  will equal only 3/4 of the current benefits given
  to retirees

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In the Future, Fewer Workers Will Support More
Retirees
As a matter of simple math, when the ratio of
workers to retirees falls, each worker must bear
a greater financial burden.
2030 2.1 to 1
Today 3.4 to 1
1960 5.1 to 1
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Low Birth Rates Mean Fewer New Workers
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Increasing Life Expectancies Mean More Retirees
to Support
Future retirees will live years longer than
todays 65-year-olds, and collect thousands more
in benefits.
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Government Spending Leads To Social Security
Deficits

• Since the 1980s, American workers have been
  contributing more into Social Security than
  retirees have been taking out
• The average surplus amount has been 100 Billion
  p/year
• By year 2021, the Trust Fund is projected to have
  
• close to 4 Trillion
• Social Security Fund is used to pay for all
  current
• Social Security claims
• Funds left over are spent by the government
• This is how part of the Social Security deficit
  is formed

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Social Security Prevents Savings

• Paying more on Social Security taxes reduces
  individual disposable income, which in turn
  reduces the amount of savings
• People are more reluctant to save money for
  retirement on their own
• Social Security may reduce private saving
• by as much as 50
• Lowered Growth (GDP)
• Reduced savings results in decreased private
  investing
• Decrease in capital stock ownership could easily
  exceed 10 trillion, which is equivalent to 2 of
  GDP per year

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Reduced Pension Plans
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High Social Security Taxes (cont.)
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Social Security Fraud

• Criminal activity
• False statements on claims
• Concealment of material facts or events affecting
  eligibility
• Misuse of benefits by a representative payee
• Buying or selling Social Security cards or SSA
  information
• SSN misuse involving people with links to
  terrorist groups or activities
• Crimes involving SSA employees
• Identity theft
• Other violations
• Conflict of interest
• Fraud or misuse of grant or contracting funds
• Significant mismanagement and waste of funds
• Standards of conduct violations

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Social Security Penalizes Education
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Other Problems

• Workers have no legal right to Social Security
  benefits
• Helvering v. Davis (1937)
• Flemming v. Nestor (1960)
• Loss of benefits in case of death

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Other Problems (cont.)

• Poor Rate of Return On Taxes Paid
• Workers born before World War II paid
  significantly less in taxes than they will
  receive in benefits - and can expect a higher
  rate of return than subsequent generations.
• Assuming that the program can pay full promised
  benefits,
• Baby Boomers can expect a rate of return of less
  than 2, and Generation Xers can expect less
  than 1.
• Children born today can expect a rate of return
  from Social Security of almost ZERO
• Under the current system, benefits must be cut in
  order to reduce the deficit. For Americans
  benefits would be cut
• 16 for today's 30yr-olds, 29 for today's
  20yr-olds and
• 35 for today's newborns.
• The only other options under the current system
  is to raise taxes or the retirement age even more

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Social Security Reform

• Why Pay into a Fund We May Never See?

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Solution Privatization

• The ability to choose your investment portfolio
  instead of putting money into Social Security

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Positives about Privatization

• The ability to choose the combination of risk and
  return in which you wish to take
• Allows worker to gain higher rate of return
  compared to the weak return of Social Security
• Allows retirees to leave accumulated savings to
  someone if he or she happens to die before
  retirement
• The ability to choose lump-sum distribution of
  retirement savings, rather than being forced to
  receive a monthly annuity
• The ability to use accumulated funds for
  emergencies that might occur prior to retirement
• The ability to retire and live on accumulated
  savings before the official retirement age

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The Chilean Social Security System

• 1) The Chilean system links benefits to
  contributions
• 2) Workers are required to contribute a minimum
  of of 10 of their salary, but may contribute up
  to 20
• 3) The contributions are tax deductible
• 4) The investors cannot direct their own
  investments
• 5) At retirement, the worker converts his account
  into an annuity with an insurance company
• 6) The annuities are taxed, but usually at a low
  rate

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The Chilean Social Security System (contd)

• 7) If the annuities are not sufficient to bring
  the worker above the minimum living income, the
  state makes up the difference from general
  revenues
• 8) A Private Pension Fund Administration (AFP)
  invests the contributions in mutual funds,
  stocks, corporate bonds, and government bonds
• 9) Workers that have contributed to the old
  government system and retirees were given options
  to stay in the old system or move to the new
  system
• 10) The transition was financed without raising
  tax rates, generating inflation, or pushing up
  interest rates

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Outperforming United States Social Security
Returns

• A single U.S. male with average earnings, born in
  1937, has realized only a 1.6 annual rate of
  return
• Between 1981, when private pension plans were
  implemented in Chile, and 1998, Chilean workers
  have realized an 11 rate of return on their
  private accounts
• The average retiree from Chiles private system
  gets a pension that is 80 of his average income
• From 1986 to 1995, workers in the United Kingdom
  achieved an annual average growth of 8.7 in
  their private pension plans.

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Singapores Privatizing Success

• Residents of Singapore are forced to save 40 of
  their incomes
• Singapore has the highest savings rate in the
  world
• 85 of Singapores population own their homes

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Negatives about Privatization

• Privatization Is Risky
• Privatization Hurts Women
• Privatization Reduces Disability and Survivors
  Benefits
• Privatization Implementation is Costly

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President Bushs SolutionPrivate Accounts

• Gives younger workers the option of putting part
  of their payroll tax into personal retirement
  accounts, in return for smaller Social Security
  benefits.

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Private Accounts

• Allows workers to divert part of their payroll
  taxes into personal savings accounts
• Allows this portion of Social Security taxes to
  be invested in stocks and bonds that typically
  yield higher returns than the current
  government-managed system
• In the short-term, private accounts would worsen
  Social Securitys financial condition
• Private accounts are a better alternative for
  younger workers

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Website Resources

• www.actuary.org/socialsecurity
• www.cato.org
• www.mysocialsecurity.org
• www.ssa.gov