§ Introduction
o Foreigners' willingness to place their savings in the U.S → Economy increase → but another problems occur
o The increasing fruits of US does not just stay in US but to the foreign investors
o Social Security taxes and benefit levels are not based on expected rates of return and risk levels for various savings instruments
o Society think to invest to Social Security
§ Social Security
o Security that manage by individuals to make their financing retirement
o The link between saving (by both governments and families) and retirement income is the key to both a healthy economy and its ability to provide for senior citizens
o The connection between saving and retirement earnings is most obvious for those who contribute to Individual Retirement Accounts
o It is visible also to those who work in companies that provide pensions for which employee contributions are required
o The danger of declining retirement income from saving is that families come to count on a certain future retirement and therefore tend to save themselves
o This has consequences both for the individual and the economy → slower growth in productivity
o Originally, benefits paid to current retirees were to be funded exclusively from modest payroll taxes → 1 percent of the first $3,000 earned
o Over the years, Social Security benefits have increased, as have the contributions required of workers
o
§ Problems Occur
o Baby Boomers → demographic changes → have rendered the Social Security system unsustainable in its current form
o As a result, the Social Security system faces serious funding short-falls beginning around 2018 and continuing into the indefinite future → the future of retirement for the next generations is even bleaker.
o People began to think of retirement funding as a right and primarily a public responsibility → they started saving less
o Foreigners' willingness to place their savings in the U.S → good for the U.S. economy → but an increasing share of the fruits of economic growth → goes to the foreign investors’ → not available for funding the retirements of American workers.
o The federal government's excess revenues from Social Security → not saved but → reallocated to fund other government programs
o Some Social Security company → include some combination of smaller increases in benefits, higher payroll taxes and delayed retirement → make more money
o
§ Solutions
o Social Security system continues to promise future benefits → Social Security should no longer be regarded as a risk-less source of retirement income
o Create personal savings accounts → a partial privatization of the system
o Take some of the tax that take by the Social Security → Allocate them to personal retirement accounts, invested in a limited number of stock and bond instruments
o Proposals to create personal savings accounts (PSAs) → Designed to counter expectations that Social Security can be the primary source of retirement income.
o Because workers have the ability to choose the PSA portfolios that best fit their own circumstances, nobody will be led to believe that society owes them a retirement income
o
§ Problems occur after the solution implement
o Foreigners reluctant to buy U.S. government bonds and to invest in the U.S. then the burden of the deficit will become obvious in terms of rising interest rates that affect all Americans
o Investment rates in the U.S. fall → as a result of decreases in investment by foreigners and rising budget deficits → slower growth in American productivity, which jeopardizes both short-term and long-distant future earnings
o In addition to slower growth → the downturn in foreign savings coming into Treasury bonds and the U.S. economy → means that the current U.S. budget deficit is unsustainable
o This increases the urgency of reducing the imbalance between Social Security revenues and outlays
o Both current and future generations must share these costs in a way that does not overburden particular cohorts
§ Final Solution
o One of the key objectives of Social Security → to ensure that even people with low earnings are able to retire with adequate benefits
o Maintaining benefit levels paid to current retirees → because they have little or no earning lifetime left to save and invest for their retirement needs
o Lowering over time → net benefit increases promised to current and future retirees. This move usually includes reducing the inflation index by which the benefits are adjusted upward and making a greater share of benefits taxable
o Introducing progressive indexing → provide greater cost of living adjustments for the poorest retirees and less for others
o Raising the age of eligibility for Social Security benefits → reflect increased years of health and productivity
o Raising the income cap on Social Security tax payments
o Foreigners' willingness to place their savings in the U.S → Economy increase → but another problems occur
o The increasing fruits of US does not just stay in US but to the foreign investors
o Social Security taxes and benefit levels are not based on expected rates of return and risk levels for various savings instruments
o Society think to invest to Social Security
§ Social Security
o Security that manage by individuals to make their financing retirement
o The link between saving (by both governments and families) and retirement income is the key to both a healthy economy and its ability to provide for senior citizens
o The connection between saving and retirement earnings is most obvious for those who contribute to Individual Retirement Accounts
o It is visible also to those who work in companies that provide pensions for which employee contributions are required
o The danger of declining retirement income from saving is that families come to count on a certain future retirement and therefore tend to save themselves
o This has consequences both for the individual and the economy → slower growth in productivity
o Originally, benefits paid to current retirees were to be funded exclusively from modest payroll taxes → 1 percent of the first $3,000 earned
o Over the years, Social Security benefits have increased, as have the contributions required of workers
o
§ Problems Occur
o Baby Boomers → demographic changes → have rendered the Social Security system unsustainable in its current form
o As a result, the Social Security system faces serious funding short-falls beginning around 2018 and continuing into the indefinite future → the future of retirement for the next generations is even bleaker.
o People began to think of retirement funding as a right and primarily a public responsibility → they started saving less
o Foreigners' willingness to place their savings in the U.S → good for the U.S. economy → but an increasing share of the fruits of economic growth → goes to the foreign investors’ → not available for funding the retirements of American workers.
o The federal government's excess revenues from Social Security → not saved but → reallocated to fund other government programs
o Some Social Security company → include some combination of smaller increases in benefits, higher payroll taxes and delayed retirement → make more money
o
§ Solutions
o Social Security system continues to promise future benefits → Social Security should no longer be regarded as a risk-less source of retirement income
o Create personal savings accounts → a partial privatization of the system
o Take some of the tax that take by the Social Security → Allocate them to personal retirement accounts, invested in a limited number of stock and bond instruments
o Proposals to create personal savings accounts (PSAs) → Designed to counter expectations that Social Security can be the primary source of retirement income.
o Because workers have the ability to choose the PSA portfolios that best fit their own circumstances, nobody will be led to believe that society owes them a retirement income
o
§ Problems occur after the solution implement
o Foreigners reluctant to buy U.S. government bonds and to invest in the U.S. then the burden of the deficit will become obvious in terms of rising interest rates that affect all Americans
o Investment rates in the U.S. fall → as a result of decreases in investment by foreigners and rising budget deficits → slower growth in American productivity, which jeopardizes both short-term and long-distant future earnings
o In addition to slower growth → the downturn in foreign savings coming into Treasury bonds and the U.S. economy → means that the current U.S. budget deficit is unsustainable
o This increases the urgency of reducing the imbalance between Social Security revenues and outlays
o Both current and future generations must share these costs in a way that does not overburden particular cohorts
§ Final Solution
o One of the key objectives of Social Security → to ensure that even people with low earnings are able to retire with adequate benefits
o Maintaining benefit levels paid to current retirees → because they have little or no earning lifetime left to save and invest for their retirement needs
o Lowering over time → net benefit increases promised to current and future retirees. This move usually includes reducing the inflation index by which the benefits are adjusted upward and making a greater share of benefits taxable
o Introducing progressive indexing → provide greater cost of living adjustments for the poorest retirees and less for others
o Raising the age of eligibility for Social Security benefits → reflect increased years of health and productivity
o Raising the income cap on Social Security tax payments
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