Choosing the Nation's Fiscal Future (2010) / Chapter Skim
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Appendix C: Social Security Options
Appendix C: Social Security Options
Pages 247-260
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From page 247... ...
the earnings replacement rate; and, very briefly, (3) the policy option of individual investment accounts and the Social Security program.
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Thus, meeting this goal is not, by itself, sufficient to ensure the long-term solvency of the program. The 75-year Actuarial Balance Under current practice, Social Security actuaries report the actuarial balance of the retirement and disability programs as the net present value of Social Security system, that is, the present value of expected revenues minus the present value of scheduled expenditures over the "valuation period" of time that is used.1 The valuation period has historically been 75 years; recently, however, an in-perpetuity accounting period also has been reported.
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THE EARNINGS REPLACEMENT RATE FOR INDIVIDUAL WORKERS Many of this report's graphs and tables estimate Social Security retirement benefits as a percentage of individual illustrative workers' preretire
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Because spousal Social Security benefits are often considerable, because there are now many two-earner couples (and likely to be in the future) ; because spouses' labor force attachment and rewards increasingly approximate each other; and especially because most people enter retirement married, the Social Security replacement rate is generally lower than that used in retirement planning.3 The research on this topic calculates replacement rates from rich data sources, rather than solely the program's administrative records: Lusardi and Mitchell (2007)
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One proposal has been to emphasize individual accounts by permitting wage earners to redirect part of their payroll tax payment to individual investment accounts for retirement -- perhaps accounts that the wage earner would manage. This redirection of the payroll tax would lead to an offset -- that is, a reduction -- from regular Social Security benefits.
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Then the current-law adjustment would resume until 2070, at which time progressive indexing would restart. • Consistent with discussion by the Office of the Actuary of the Social Security Administration (2009a:3-5)
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dPayroll-tax increases only. the price level becoming more predominant as career earnings rise, up to the maximum subject to the Social Security payroll tax.
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However, progressive indexing would restart in 2060. • The existing rate of payroll taxation for Social Security (for earn ings under the current-law cap)
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This is because, for example, while the trust fund ratio relates the start-of-year balance to that year's spending, revenues enter the trust fund during the year. In fact, once a durable long-term balance is attained between annual revenues and spending -- as our reforms do -- a few years' dip in the trust fund ratio need not signal impending depletion of the Social Security reserves.
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eThat is, at the cap under the current-law Social Security payroll tax.
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eThat is, at the cap under the current-law Social Security payroll tax.
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NOTES 1. "Present value" is a way to summarize various time paths of expected future cash flows into and out of the trust fund with a single number.
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4. As said, like Chapter 6 and unlike the rest of the report, this appendix relies on the intermediate economic and other assumptions of the 2009 report of the Social Security Trustees, rather than Congressional Budget Office assumptions.
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