2007 Social Security Consumer Math

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  • 1. Unit 9 Social Security
  • 2. Introduction
    • Social Security is a federal program that taxes workers to provide income support for the elderly.
    • Social Security is also the largest social insurance program in the U.S.
      • By making payroll tax payments to Social Security, workers purchase insurance against earnings loss when they die or retire.
  • 3. WHAT IS SOCIAL SECURITY AND HOW DOES IT WORK?
    • Social Security began in 1935, during the height of the Great Depression . The main motivation was to provide a means of support for this unfortunate generation of elderly.
    • Basic structure is that workers (and employers) pay a payroll tax (Salaries) , and the money is used to pay benefits to the current generation of elderly.
  • 4. Program Details
    • Social Security is financed through the FICA tax, which totals 12.4% of gross earnings
    • An individual can collect Social Security as early as age 62, assuming he has paid into the system through the payroll tax for 10 years .
      • Age 62 if you worked past 10 years
  • 5. How Does Social Security Work Over Time?
    • How does Social Security work over time?
      • Social Security is unfunded .
      • This means that taxes collected from a current worker go directly to current retirees.
      • This is referred to as a “Pay-As-You-Go” system.
  • 6. How Does Social Security Work Over Time?
    • There is no guarantee with a pay-as-you-go system that future benefits will be paid out in the way one might expect:
      • The system could go bankrupt.
      • Future generations could refuse to pay to finance the system.
  • 7. How Many People Get Social Security?
    • 47.7 million people receive Social Security each month
    • 1 in 6 Americans get Social Security benefits
    • Nearly 1 in 4 households get income from Social Security
    National Academy of Social Insurance, Social Security Finances: A Primer (2005)
  • 8. Welfare System Who Gets Social Security?
    • 30.0 million retired workers
    • 4.8 million widows and widowers
    • 6.2 million disabled workers
    • 0.8 million adults disabled since childhood
    • 3.1 million children
    National Academy of Social Insurance, Social Security Finances: A Primer (2005)
  • 9. How Much Does Social Security Pay? www.ssa.gov/OACT/COLA/colaeffect.html Type of Beneficiary Average Monthly Benefit All Retired Workers $1,044 Aged widow(er), non-disabled $1,008 Disabled worker $979 Aged couple-both receiving $1,713 Widowed mother and two children $2,167
  • 10. Social Security and Poverty
    • 2007 Poverty Levels
      • Single individuals – $10,210 ($851/month)
      • Married couples – $13,690 ($1,141/month)
    • With Social Security only 9% were poor
      • in 2000
    • Without it, 48% would have been poor
  • 11. Financing Social Security
    • Workers and their employers pay with Social Security taxes
    • Workers pay
      • 6.2% of their earning for Social Security, and
      • 1.45% of their earnings for Hospital Insurance under Medicare (MQFE)
    • Employers pay an equal amount
    • The total is 12.4% for Social Security and 2.9% for Hospital Insurance.
    • Social Security tax base is $97,500 in 2007
  • 12. Worker Benefits
    • Workers over 62 are eligible
      • If they have worked 10 years
    • Benefits are based on a workers earnings history
      • Career-average earnings
      • Average Indexed Monthly Earnings (AIME)
  • 13. Average Indexed Monthly Earnings (AIME)
    • Determine how much the worker earned every year through age 60
  • 14. How do benefits compare to earnings? Retired worker age 65, 2005
  • 15. How many people rely on Social Security for most of their income?
    • 90% of people 65 and older get Social Security
    • Nearly 2 in 3 (66%) get half or more of their income from Social Security
    • About 1 in 5 (22%) get all their income from Social Security
    National Academy of Social Insurance, Social Security Finances: A Primer (2005)
  • 16. Family Benefits
    • Spouses, dependents, and survivors
    • Husband or wife
    • Widow or widower
  • 17. How do actuaries estimate the future?
    • Review the past: birth rates, death rates, immigration, employment, wages, inflation, productivity, interest rates
    • Assumptions for the next 75 years
    National Academy of Social Insurance, Social Security Finances: A Primer (2005)
  • 18. What is that non-taxable income?
    • Income not subject to Social Security taxes includes:
      • earnings above the tax cap ($97,500 in 2007)
    National Academy of Social Insurance, Social Security Finances: A Primer (2005)