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Social Security Reform

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What are the concerns with Social Security at the macroeconomic level? What options do Americans have in protecting their Social Security and dealing with these issues? How are these done on the microeconomic level?

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Solution Summary

Social Security's impending shortfall and options for keeping it solvent.

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Annual spending on Social Security will exceed the system's tax revenue in 2018 and the trust fund will be empty in 2042, at which point the system will be insolvent. Under current law, the benefits the system will be able to pay from that year on will be only as great as the revenues coming in. Retirees would receive only about 75 percent of scheduled benefits. The reason for this shortfall is twofold: firstly, Americans are having fewer children and living longer. Secondly, adjusted for inflation, benefits increase each year. This is called "indexing" and was introduced in 1977.

As currently structured, social security reduces national savings. If social security taxes were invested by the government and returned to workers with interest, social security would essentially be a system of ...

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