* Nick Arnett ([EMAIL PROTECTED]) wrote: > Erik Reuter wrote: > > >... But Social Security is broke, > > Pretty hard to continue reading after that sentence. > > Unless, of course, I hear that all the Social Security checks are > bouncing and find out that it's true.
If you want a more detailed description of what he means, you can read about it at http://www.aei.org/docLib/20030723_SmettersFinalCC.pdf Briefly, Kotlikoff is referring to the fact that the present value of scheduled SS benefits exceed the present value of future SS payroll tax income. He could equivalently have said the system is "broken". The forecast is that SS will not be able to pay scheduled benefits in the future without an increase in funding. A similar situation would be a person with a life expectancy of 20 years who today is earning $10K more per year than he is spending, but who currently owes $250,000 on his mortgage. The present value of this person's future savings is $194,500 [1]. So the present value of this assets are less than liabilities. That is a good definition of bankrupt, even if the day of reckoning may be years off. Now, SS is of course different than this person's situation. SS benefits are an implicit obligation -- there is no exact analogy to the mortgage holder above. So, what might happen is that in 2042 benefits would be cut to 73% of what is currently scheduled (if Congress does nothing to increase funding for SS, essentially Congress would be defaulting on an implicit SS obligation). Reducing benefits to 73% of scheduled in 2042 makes the present value of scheduled SS obligations equal to the present value of future SS taxes. [1] Assuming an annual real growth rate of earnings and spending of 1.7% and a real discount rate of 2% -- Erik Reuter http://www.erikreuter.net/ _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
