Privitization of Social Security -Memorandum

New Jersey Institute of Technology

Newark, NJ 07103

www.njit.edu

Memorandum

To: The Honorable Sam Johnson

Chairman, Subcommittee on Social Security

From: Deepak Veetil

Re: Privatization of Social Security

Date: May 27, 2015

The large baby boomer generation of America is beginning to retire in multitudes and average life spans of America are continuing to rise. As a result, the number of elderly and retired Americans is projected to rise rapidly and will push up the cost of Social Security program. The last five Trustees Reports have indicated that Social Security's Old-Age, Survivors, and Disability Insurance (OASDI) Trust Fund reserves would become depleted between 2033 and 2037. If no legislative change is enacted, scheduled tax revenues will be sufficient to pay only about three fourths of the scheduled benefits after trust fund depletion.

When Social Security was created in 1935, the life expectancy was less than 12 years for males at age 65. Today, the life expectancy at age 65 is 18 years, and by 2045 it is expected to be 20 years. The number of working-age (ages 20 to 64) workers available to support the growing retiree population will not be able to keep up the pace. One reason is that birth rates have fallen in recent decades from about three children per woman in the 1960s to about two today. It is projected that by 2030 the number of people age 65 and older will increase 70 percent while the number of working-age people (ages 20 to 64) will increase by just 6 percent.

These changing demographics are the main cause for Social Security's financial imbalances. The imbalances are obvious in the program's projections of "income rate" and "cost rate," which are the revenues and expenses of Social Security expressed as a percentage of taxable wages. In 2015, the income rate is 12.86 percent and the cost rate is 13.97 percent, which will create a 7 percent deficit. By 2035, the income rate is projected to be 13.16 percent, while the...