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Log in Sign Up. Save Word. Definition of social security. Examples of social security in a Sentence She is living on social security. He began collecting Social Security checks. First Known Use of social security , in the meaning defined at sense 1.
Learn More About social security. Share social security Post the Definition of social security to Facebook Share the Definition of social security on Twitter. Future voters might balk at paying higher taxes, and benefits would then have to be cut. The expected revenues of Social Security will fall short of expected benefit payouts by 14 percent over the next seventy-five years, a shortfall that is equivalent to 2.
By benefit payments would need to be cut nearly one-quarter to keep the program solvent under the present payroll tax. This does not mean Social Security pensions must eventually be eliminated, as some young workers fear, but it does mean their taxes must be increased or their benefits cut if the system is to be preserved.
The two main economic arguments in favor of privatization are that it would increase real returns on pension contributions and boost national saving. Both arguments are valid, for some forms of privatization, assuming the public system to be dismantled is financed on a pay-as-you-go basis. There is no reason, however, that public retirement benefits must be supported with pay-as-you-go financing.
The important distinction is between advance funding and pay-as-you-go financing, not between public and private management of investment funds.
Millions of employees of state and local governments have advance-funded pensions, and their pension funds are publicly managed. Advance funding, combined with a more aggressive investment strategy, can offer a higher return to current and future contributors. The larger accumulation in pension funds, whether they are publicly or privately managed, can boost national saving.
If the reserve were invested in the same mix of assets that would be selected by workers, it would earn an identical rate of return.
The net return would actually be somewhat higher, because the expense of maintaining a single public fund is considerably smaller than the cost of administering tens of millions of private accounts, many of which would be extremely small.
For Social Security to accumulate the same kinds of assets that workers would place in private retirement accounts, a change in Social Security investment strategy is needed.
By law, Trust Fund reserves are invested in U. Treasury debt where they earn the rate of return on publicly held U. Workers seeking a high return on their retirement savings invest in other types of assets in addition to government securities. Based on the experiences of workers who invest in k pension plans, the Advisory Council estimates that 55 percent of the retirement savings of workers under age forty would be invested in equities. One of the three plans outlined by the Advisory Council proposed investing up to 40 percent of Trust Fund reserves in corporate stock, increasing the expected rate of return on reserves by about 1.
The Social Security Actuary has calculated the rate of return that workers can anticipate under the current system and under alternative systems proposed by the Advisory Council. These calculations are helpful in understanding the potential gains from privatization and how they are achieved. Figure 3 shows the expected rate of return of an average-wage worker under two alternatives. One alternative assumes workers will continue to receive Social Security benefits under the present benefit formula but that taxes will eventually be raised starting in to ensure that the OASDI Trust Funds are never depleted.
This strategy keeps Social Security solvent, but it reduces the rate of return received by younger workers, because they must make larger contributions to obtain the same amount of benefits.
Figure 3 shows that the rate of return under this policy will decline continuously for workers born in successive generations.
Average-wage workers born in will typically receive a return of just 1. The second alternative assumes that 5 percent of the present payroll tax is diverted into private retirement accounts; an extra 1.
The Actuary assumes that almost half of the funds in private retirement accounts will be invested in stocks and that stocks will yield an annual real return of 9. For workers born in , the rate of return under the partially privatized system is predicted to exceed the return under a solvent OASDI system by 2 percentage points.
There are four main reasons for the difference. First, a private system will absorb some worker contributions for administration of the individual accounts. In addition, workers will not invest all their contributions in the stock market, preferring instead to invest some funds in less risky assets, like government bonds, where yields are lower.
Risk-averse workers may invest much less than half their funds in stocks, especially as they near retirement. For middle-aged workers, returns will also be low because much of their retirement income will come from scaled-back Social Security benefits.
As these benefits are reduced for example, by raising the age of entitlement for full pensions , workers will be forced to accept a lower rate of return on their past Social Security contributions. Finally, workers will be required to contribute 1. They receive no return on these contributions. For average-wage workers born in the s and s, the transition to the private system actually requires workers to accept a reduction in the rate of return they can anticipate under the present system.
Workers born in , for example, would earn 0. The financial advantages of privatization only become sizable for workers born in the s or later, who earn good returns on the privately invested part of their contributions throughout most of their careers. The higher returns of future workers are achieved at the expense of middle-aged and older workers, who would be asked to accept smaller Social Security pensions than promised by current law.
By accepting smaller pensions, middle-aged and older workers make it possible to pay for the transition to a private system with a supplemental payroll tax that is just 1. If they received full Social Security pensions, the supplemental payroll tax would be higher and the returns enjoyed by younger workers would be smaller than shown in figure 3. The privatization plan described above requires substantial federal borrowing over a transition period that lasts about three decades.
The current publicly held Treasury debt is about 50 percent of GDP. The Treasury is assumed to pay a real interest rate of 2. The assumed interest rate is important for two reasons.
A higher interest rate increases the supplemental payroll tax needed to pay for the past liabilities of Social Security, which makes the private plan appear less attractive. At the same time, it increases the interest earnings of the OASDI Trust Funds under the current system and postpones the year that payroll taxes must be raised, which improves the rate of return enjoyed by workers under the present system.
The more costly it is for the federal government to borrow from the public, the less attractive moving toward the private retirement system will appear. Most privatization plans, like the one just described, involve four basic elements: a promise to retirees and older workers to pay all or most of the Social Security benefits they have earned; a cut in benefits to younger workers; a diversion of Social Security payroll taxes for younger workers into private investment accounts; and increased federal borrowing to offset the diversion of taxes into private accounts.
Because younger workers are assumed to place their contributions in high-yield investments, they earn a better return than they could obtain in a mature pay-as-you-go retirement system. Their returns are higher because the federal government can borrow funds at a low interest rate while workers can invest the funds at a high rate.
If this magic works when 5 percentage points of the payroll tax is diverted into individual accounts, it is natural to ask why the diversion should be limited to 5 percent. Why not divert the entire Under the assumptions used by the Actuary, the returns earned by young workers would be even better than those shown in figure 3. Many proponents of privatization hesitate to recommend diversion of the entire payroll tax into private accounts for two reasons.
They wish to retain at least a small public system to redistribute some extra benefits to low-wage workers and protect them against abject poverty. Any part of the payroll tax that is retained for this purpose will reduce the returns enjoyed by average — and above-average — wage workers. Many who favor privatization also recognize that voters might reject any plan that adds massively to public borrowing. In fact, a balanced budget amendment to the constitution would probably make it unconstitutional to implement ambitious privatization plans see box 2.
In later years additions to the deficit would be even greater, because higher interest payments on a larger debt would increase federal spending requirements still further. We should be skeptical of suggestions that the government could issue trillions of dollars of new debt and allow the proceeds to be invested in equities without raising the costs of borrowing or reducing the return on equities. If the national debt were expected to climb enormously over the next few decades, investors who purchased government debt would probably demand a higher rate of return than 2.
As we have seen, a higher federal borrowing rate makes most privatization plans less attractive. The predicted high returns of this financing proposal have little to do with privatization. If the public system borrows the same amount of money at the U. Treasury interest rate and follows the same investment strategy that individual workers would have pursued with the same funds, overall returns under the public system could be the same as or slightly higher than those in the private system.
The more money that is borrowed at a low predicted interest rate and invested at a high assumed rate of return, the better the predicted returns under the system, whether the investment funds are managed publicly or privately. The balanced budget amendment would also make it more difficult, though not impossible, to invest part of the Trust Fund in corporate equities.
Such investments are treated as a government expenditure under current budget rules. Dividends and income produced by sales of corporate stock are treated as government receipts. Buying corporate stock requires that the Trust Funds purchase less government debt, so the Treasury would be forced to sell more debt to the public. This could occur under the balanced budget amendment only if there were a surplus in the rest of the federal budget or if 60 percent majorities in both Houses approved.
Some Members of Congress propose to protect the Social Security system by adding a provision to the balanced budget amendment that specifically excludes OASDI receipts and outlays from calculations of total federal receipts and outlays. This provision would have the ironic effect of making Social Security privatization much easier to accomplish.
Even without 60 percent legislative majorities, the OASDI Trust Funds would be permitted to borrow the funds needed to finance the transition to a private system. Well-informed proponents of privatization recognize that the transition to a private retirement system may not produce higher saving. For example, if workers are given a rebate of their Social Security taxes in order to fund their new individual retirement accounts, the Social Security system will be deprived of revenues that are needed to pay current pension obligations.
Instead of enjoying an operating surplus, Social Security will then require a substantial infusion of funds from the Treasury, forcing the federal government to raise taxes, to reduce other spending, or to borrow extra money. If the government borrows all the extra money, as some advocates of privatization urge, the policy could easily reduce national saving.
To see why, it is important to understand the components of saving. The flow of national saving in a given year is the sum of saving that takes place in the private sector plus saving in the government. Federal government saving is the sum of saving in the Social Security system plus the surplus or deficit in non-Social Security operations.
Many workers already have compulsory or voluntary retirement plans connected to their jobs. Some of these plans, such as IRA, k , or Keogh plans, are almost indistinguishable from the new compulsory retirement accounts that would be established in privatization. At least a few workers would reduce their contributions to existing IRA, k , or Keogh plans if they were forced to save in new government-mandated accounts.
Any reduction in the flow of saving into old retirement accounts would offset part of the effect of the flow of saving into the new retirement accounts. The plan could reduce the pensions — and thus the consumption — of the people who are already retired or who will soon retire. Alternatively, it could increase the combined contributions that workers make to Social Security and private retirement accounts and thereby reduce their consumption.
National saving would have been higher. This policy would raise national saving, too. Some privatization plans have a good chance of boosting saving. The Advisory Council plan for reducing Social Security benefits and forcing workers to invest 1.
It would almost certainly raise national saving. The alternative Advisory Council plan for diverting 5 percent of payroll taxes into private accounts would raise national saving in two ways. It would cut Social Security benefits promised to workers who will retire starting early in the next century. This will be accomplished by hiking the normal and early retirement ages for collecting Old-Age benefits and by reducing Disability Insurance benefits.
These steps increase public saving by cutting future public expenditure. The plan also introduces a new payroll tax of 1. The tax boosts federal revenues, another contribution to higher public saving.
Lower Social Security benefits and the new payroll tax are not enough to offset the 5 percent diversion of payroll taxes, however, so the federal government will be forced to borrow funds from private savers over the next several decades. UK a system of payments made by the government to people who are ill , poor , or who have no job :. He's on social security. Social Security US. AFDC be on relief idiom benefit child benefit claimant family allowance family credit giro housing benefit income support means test relief sickness benefit sign off social welfare unemployment unemployment benefit universal credit welfare welfare state See more results ».
Social Security American Dictionary. Social Security. I didn't want to be on social security. Unless you are claiming social security or are a pensioner , you have to pay for each visit to the doctor in Ireland. She might be entitled to a social security benefit called disability living allowance. Besides paperwork , another burden on the employer is the social security system.
Compare national insurance. Examples of social security. Incentives to retire later - a solution to the social security crisis? From the Cambridge English Corpus. Note that the labor costs of the firm include a share of social security contributions.
We present two versions of this result, considering two different types of social security schemes. We show that any equilibrium of this type can be supported by a nonmonetary equilibrium with a saving-based social security system, and vice versa. The general equilibrium effects of social security as well as its distortionary effects are ignored. After retirement, they receive social security benefits in the benchmark economy. This concern has encouraged calls to delay retirement so as to prevent the depletion of social security reserves.
These problems suggest that a redistributive social security system has to be centralised, and this is the standard conclusion in the public economics literature. Reducing social security benefits was an important policy instrument.
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