Social Security and the American Family

This paper presents the results of a computer simulation of the expected present value of benefits, taxes, and transfers, rates of return, and marginal linkage of benefits and taxes for persons of different income levels and family status. A number of important issues associated with the "deal" and incentives projected to be offered by the current social security system for different family situations are treated: married versus single persons, number of earners in the family and the division of earnings between them, and the special situation of widows and divorcees. The results show tremendous variation for different family situations and often dwarf amounts at stake for most families in the recent debates over income tax reform. We pay particular attention to items such as marriage penalties and subsidies, incentives to postpone divorce and low marginal linkage of expected benefits to incremental taxes paid by women, whether as second earners in a family, divorcees or widows.

The Financial Impact of Social Security by Cohort Under Alternative Financing Assumptions

This paper analyses the financial impact of Social Security by age cohort under alternative assumptions concerning future financing of Social Security. It examines the Social Security Administration's intermediate IIB and various combinations of optimistic and pessimistic assumptions concerning fertility, mortality, and wage growth. Importantly, it examines the implications of alternative potential resolutions of the long-term financing deficit and scenarios concerning the planned systematic deviation from pay-as-you-go finance in the retirement and disability funds. The results suggest that the Social Security retirement program offers vastly different returns to households in different circumstances, and especially to different cohorts. Most important, if Social Security does not maintain the large retirement trust fund surplus currently projected for the next 30 years, alternative scenarios for return to pay-as-you-go finance differ dramatically in the taxes, benefits, transfers, and real rates of return that can be offered to different birth cohorts. The implications of cutting taxes, raising benefits or diverting the surplus to other purposes have dramatic impact on the overall financial status of the system, the time pattern of taxes, benefits and surpluses or deficits, and therefore, the treatment of different age cohorts. Under the intermediate assumptions, the OASDI surplus is projected to grow almost as large as a fraction of GNP as the current ratio of privately held national debt to GNP. For example, if the OASDI surplus is used to raise benefits, and they remained at higher levels thereafter during the height of the baby-boom generation's retirement, the long-run actuarial deficit will zoom from $500 billion to over$3 trillion. Correspondingly, if benefits increase, financed by the OASDI surplus over the next 30 years, the expected rate of return on lifetime contributions increases for those currently about 40 years old from 1.9% to 2.7%, about a 40% increase. Correspondingly, if the surplus is dissipated and the subsequent long-run deficit is made up with a tax increase on a pay-as-you-go basis at the time of the projected deficit, the rate of return relative to the intermediate assumptions for those persons now being born will fall by about 158, and in this case, the overall system finances would move from a long-run actuarial deficit of slightly under one-half percent of taxable payroll to actuarial balance. Thus, as Social Security is projected to deviate systematically from pay-as-you-go finance, the potential alternative scenarios with respect to accruing the surplus and/or dissipating it in various ways have potentially large intergenerational redistribution effects.

Social security finance in developing countries

This paper presents a survey of the financial nature of social security schemes in developing countries, their implications for public sector finance as a whole, and for the process of economic development. Chapter 1 discusses what social security is and in what various ways it is implemented in developing countries. Chapter 2 considers in detail the specific provisions and financing of social security programs in a sample of 41 developing countries. Chapter 3 discusses the implications, including potential dangers, of social security systems for public sector finance generally, and Chapter 4 considers the effects of social security systems on capital and labor markets, and thus on the process of economic development. A final chapter sums up the implications of the analysis for public policy in developing countries and for the research agenda for the World Bank.Pensions&Retirement Systems,Insurance Law,Gender and Law,Governance Indicators,Insurance&Risk Mitigation

Social Security: A Financial Appraisal Across and Within Generations

This paper computes the expected present value of Social Security retirement benefits and taxes for households of different marital circumstances, incomes, and age cohorts. Also computed are the net gain or loss from participation in the system and the expected internal rate of return it offers various participants. The paper calculates the marginal linkage between benefits and contributions, and also examines how the age of entry into the covered workforce affects the participant. All computations are made for the 1985 Social Security and income tax laws. The general results are that Social Security offers vastly different terms to households in different circumstances. The net gain or loss varies by $200,000 and the real internal rate of return on contributions ranges from negative numbers to 6.6% for households of different ages, income levels, and marital status. These differences are far greater than the widely debated distributional affects of relevant income tax alternatives. We also find that there is a great deal of variance in the marginal linkage of benefits and taxes with many households facing a situation where the present value of benefits increases from 0 to 30 cents per extra dollar of taxes paid.