Question

Social Security is financed on a pay-as-you-go system. Explain. Given the current birth rate in America and the size of the retiring baby boomer generation, what are the challenges that Social Security faces?

Answer 1

SOLUTION

CHALLENGES OF SOCIAL SECURITY FACES

• The commission has overstepped its bounds in questioning the value of the assets held by the trust fund. When congress passed the legislation that led to the accumulation of bonds by the trust fund, it was assigning these assets to social security. The budget issues associated with paying the interest and principles of these bonds were not on the charge of the commission.
• If the system actually faces the trust fund, shortfall after the trust fund is depleted in 2038, It is easy to design measures that preserve the existing systems while increasing its fairness.
• The commission appears to be operating under the assumption that the stock market will provide substantially higher returns than the government bonds currently held by the trust funds.
• The only stock projections which have actually been derived from the trusties profit projections show that the real stock returns will average less than 4.0 percent over the seventy five year planning period.
• The 1983 social security commission , which was chaired by Alan greens pan proposed a schedule of taxes and benefits which was projected to the lead of a surplus in the social security fund
• If there are any doubts about the intention of congress to keep the finances of the social security program separate from the overall budget these should have been eliminated when congress voted to remove the social security program from the overall budget in 1990.

Increase in retirement age

• People are living longer and drawing social security faces longer, putting a strain on the system increasing the retirement age which would force people to stay longer in the workplace than expected or desired. Some believe that raising the retirement age cut no matter when you taking benefits.

Reduce cost of living benefit

• The current cost of living adjustment doesn't keep up with inflation. In fact the adjustment for 2017, will be the lowest annual increase on record. This negatively affects senior citizens income because out of pocket healthcare cost and medications tend to increase at the faster rate than the average cost of living