Social Security: Rates of Return and the Fairness of Benefits

This study determines internal rates of return for the retirement portion of the social security contributions for hypothetical individuals and couples with varying earnings splits and a range of ages and income levels. The authors compare pre-tax rates of return on social security contributions to...

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Bibliographic Details
Published in:Policy File 1994
Main Authors: Harmelink, Philip J, Speyrer, Janet Furman
Format: Report
Language:English
Subjects:
Economic policy
Government
The Cato Institute
Online Access:Request full text
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Summary:This study determines internal rates of return for the retirement portion of the social security contributions for hypothetical individuals and couples with varying earnings splits and a range of ages and income levels. The authors compare pre-tax rates of return on social security contributions to those of alternative investments for similar time periods. They further examine the after-tax rate of return on the contributions for these hypothetical individuals and couples to determine the extent of the various inequities. In both of these analyses, they circumvent the difficult issue of choosing the appropriate discount rate to use in the present value calculation. They also explore earnings sharing as an alternative to the current benefits structure of the social security system. Finally, they discuss other possible changes in the benefits structure to address the topic of fairness.