Social Security and Race
Monday, October 02, 2000
by Liquin Liu and Andrew J. Rettenmaier
Table of Contents
- Executive Summary
- Social Security as an Investment
- Why Investment Results Differ for Different Groups of Workers
- Comparing Social Security's Cost's and Benefits
- Estimating Social Security's Costs and Benefits for Groups of Workers
- Calculating Expected Net Present Values and Expected Rates of Return
- Net Present Values for Individuals Born in 1935 and 1980
- Implications for Privatization
- About the Author
Social Security benefits account for more than half of a typical older American's household income. Social Security also provides insurance against death prior to retirement and benefits for nonworking spouses who outlive the beneficiary. Together the retirement pensions, spousal benefits and life insurance provide income security for workers and their families from soon after they enter the workforce until their death or the death of their spouse. The completeness of the coverage and the fact that until now most retirees have received reasonable rates of return on their tax payments help explain why the program has been hugely popular for most of its life.
"Social Security is not an investment, but it can be evaluated as an investment from the individual worker's point of view."
However, with the taxation of benefits, the projected increase in the retirement age and the high level of payroll taxes needed to finance current and future benefits, more people are viewing Social Security as a poor investment. With the diffusion of stock ownership, more taxpayers and recipients have become aware of the rate of returns earned by private investments in stocks and bonds in comparison to the return received on their Social Security taxes.
The bleak projections now published annually by the Social Security trustees indicate that the number of workers paying taxes to support each beneficiary will fall from the current level of about 4 workers per beneficiary to 2 workers per beneficiary. As a result, tax rates will have to rise in coming years. Thus it is not surprising that many younger workers view Social Security not as an income security program, but as an ever-increasing tax burden - with their own Social Security benefits far from certain.