Long run simulation of the German social security system

In May 2009 the Office of the Chief Actuary for the U.S. Social Security Administration projected that by 2016 the Social Security Trust Fund would begin to spend more money than it took in through tax revenue. Further, by 2037 the balance in the Trust Fund would be down to zero, necessitating cuts in benefits to retirees. The U.S. Social Security system thus faced a long-term financial problem that needed to be addressed sooner rather than later. The experience of other countries in reforming their own systems of old-age insurance might provide some guidance for U.S. policymakers as they attempt to deal with the long-run fiscal challenges facing the U.S. Social Security system. This case focuses on reforms of old-age insurance systems in three countries: Australia, Mexico, and Sweden.This case gives students the opportunity to debate the variety of approaches that could be used to reform the U.S. Social Security system. It also gives insight into how countries around the world have structured their old-age insurance systems.

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Lifetime Earnings, Mortality, And Social Security Benefits: Implications For Reform

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v25i4.1021 ◽

2011 ◽

Vol 25 (4) ◽

Author(s):

Alan D. Eastman ◽

Kevin L. Eastman

Keyword(s):

Social Security ◽

Social Security System ◽

Current Level ◽

Security System ◽

Font Size ◽

Long Run ◽

The Social ◽

Mortality Difference ◽

Lifetime Earnings ◽

Social Security Benefits

The Social Security system is facing significant financial challenges, but politicians, economists, and other experts cannot agree on appropriate solutions.  Raising taxes and/or cutting benefits are never popular proposals, and competing groups want to protect the poor while at the same time maintain fairness for the more wealthy.  Recent studies, such as Cristia (2007), Duggan et al. (2007), and Waldron (2007), have shown a strong correlation between lifetime earnings and mortality, suggesting that differences in life expectancy between the wealthy and the less wealthy may be getting larger, thus eroding the progressivity of the Social Security system.  Our results show that for a mortality difference of one or two years, benefit reductions in the range of 2.5% to 16% would be needed to maintain the current level of progressivity for a male living to age 80.  If the mortality difference grows to four or five years, the benefit reductions would need to be much greater, anywhere from approximately 14% to 31%.  A reduction in benefits based on lifetime earnings can improve the long-run viability of the Social Security system while maintaining its current level of progressivity.

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