Deck 13: Social Security

Question 1

If your average preretirement earnings were $30,000 per year,your highest preretirement earnings were $90,000 per year,and you receive $20,000 per year in retirement benefits,what is the replacement rate?

A) 16.67%
B) 22.22%
C) 33.33%
D) 66.67%

Answer 1

66.67%

Question 2

Which is an example of a funded retirement plan?

A) a couple's plan to save 10% of all future income
B) a retirement portfolio with an investment bank
C) Social Security
D) a decision to make larger payments to pay off the mortgage sooner

Answer 2

a retirement portfolio with an investment bank

Question 3

Which person has the highest Social Security Wealth on average?

A) a woman born in 1920
B) a man born in 1920
C) a woman born in 1950
D) a man born in 1950

Answer 3

a woman born in 1920

Question 4

What is the early entitlement age?

A) 50
B) 55
C) 62
D) 65

Question 5

The Social Security program faces a serious financing problem over the next 75 years because it has promised benefits:

A) that exceed what it expects to collect in taxes by over $10 trillion.
B) equal to what it expects to collect in taxes.
C) that fall short of what it expects to collect in taxes by over $10 billion.
D) that exceed what it is allowed to collect in taxes since the tax rate cannot be changed.

Question 6

The Federal Insurance Contributions Act (FICA)tax on earnings is _________ for employees and _________ for employers.

A) 4.3%; 4.3%
B) 4.3%; 0%
C) 6.2%; 6.2%
D) 6.2%; 0%

Question 7

Suppose that you hear a politician state that her plan for reforming Social Security will work because rich retirees don't need Social Security benefits.Which approach to Social Security reform is the politician probably advocating?

A) raising taxes further
B) raising the retirement age
C) lowering benefits for all recipients
D) lowering benefits for higher-income groups

Question 8

The earnings test in Social Security is essentially a:

A) tax on earnings.
B) subsidy on earnings.
C) forced savings mechanism.
D) redistribution mechanism.

Question 9

Suppose Robin participates in a plan by buying assets with the expectation that she can live on the accumulated assets when she retires.This is an example of:

A) workers' compensation.
B) a funded retirement plan.
C) an unfunded retirement plan.
D) Social Security Wealth.

Question 10

Which of the following refers to the debt incurred by the government because early generations of beneficiaries received much more in benefits than they paid in taxes?

A) early debt
B) legacy debt
C) program deficits
D) Social Security fiscal imbalance

Question 11

Which of the following is a reason there is redistribution from those born later to those born earlier?

A) Social Security benefits diminish with age,and those born earlier lived longer.
B) Those born earlier paid into the system for only part of their lives but received benefits throughout their retirement.
C) The size of the payroll tax has remained constant over the years.
D) Social Security benefits have increased over the years in order to keep pace with inflation.

Question 12

Suppose you are thinking about retiring one year earlier than you had planned.Which rationale provides you with an incentive to do so?

A) Since earnings generally rise with age,you won't get to replace a low-wage earnings year with a high-earnings year in the 35-year benefits average.
B) You won't pay an extra year of payroll taxes on your earnings.
C) You'll get a lower Social Security benefit level than you would otherwise have.
D) You will collect Social Security benefits for a smaller number of years.

Question 13

Which is an example of an unfunded retirement plan?

A) a company-sponsored pension plan
B) a retirement portfolio with an investment bank
C) Social Security
D) an individual retirement account

Question 14

What is the full benefits age for those born in 1960 or later?

A) 50
B) 55
C) 67
D) 72

Question 15

Which of the following program details do NOT belong to Social Security?

A) The total FICA tax burden on self-employed people is 12.4%.
B) Eligibility requirements include 40 quarters of work.
C) An age of 62 or older is an eligibility requirement.
D) When eligible,the Social Security claimant receives an annuity payment.

Question 16

The purpose of the Social Security Trust Fund created in 1983 was to:

A) create private accounts for taxpayers born after 1964.
B) transform social security from a pay-as-you-go system to a fully funded pension plan.
C) build a surplus to help fund benefit payments to retirees born between 1946 and 1964.
D) prevent the federal government from using payroll tax revenues to fund other programs.

Question 17

In general,which of the following is TRUE of Social Security?

A) Females have higher Social Security Wealth than do males.
B) Singles have higher Social Security Wealth than do married people.
C) The poor lose and the rich win from Social Security.
D) Every family pays the same percentage of earnings into Social Security.

Question 18

Which of the following is NOT correct about the Social Security program in the United States?

A) It is the largest single source of income for the elderly population in the United States.
B) It provides more than 90% of income for almost 30% of the elderly.
C) It is the single largest government expenditure today and is the nation's largest social insurance program.
D) Politicians are eager to make changes to Social Security,and they have reformed the program several times in the past few decades.

Question 19

For the average person receiving Social Security benefits,benefits are roughly _________ of preretirement earnings and are ________ for low-income earners relative to high-income earners.

A) 40%; higher
B) 60%; higher
C) 80%; higher
D) 40%; lower

Question 20

The retirement hazard rate refers to the:

A) percentage of working people who retire at a certain age.
B) percentage of retirees who are injured at a certain age.
C) percentage of retirees who die at a certain age.
D) percentage of working people who die at a certain age.

Question 21

Which of the following was a recommendation or action of the Greenspan Commission in 1983?

A) Social Security should become more of a pay-as-you-go system.
B) Social Security should become more of an unfunded system.
C) Scheduled payroll tax increases should be accelerated.
D) Scheduled payroll tax increases should be slowed.

Question 22

Which of the following is equal to the present discounted value of Social Security's obligations minus the present discounted value of projected Social Security taxes over the next 75 years?

A) $1.1 trillion
B) $5.6 trillion
C) $6.8 trillion
D) $11.1 trillion

Question 23

Suppose that someone wishes to address the problems with Social Security by allowing increased immigration.That approach is equivalent to:

A) raising taxes further.
B) extending the base of taxable wages.
C) raising the retirement age.
D) lowering benefits for all recipients.

Question 24

Suppose someone argues that the problems faced by Social Security could be solved if we adjusted for the fact that people live longer than they used to,even given the changes to Social Security over that time.This is a reference to:

A) raising taxes further.
B) extending the base of taxable wages.
C) raising the retirement age.
D) lowering benefits for all recipients.

Question 25

For each of the following,determine which group would have higher Social Security Wealth (SSW),all other things equal.Explain your answers.
(a)male or female
(b)born in 1925 or born in 1985
(c)single or married
(d)low-wage earner or high-wage earner
(e)single-earner couple or double-earner couple

Question 26

In order to maintain a solvent pay-as-you-go Social Security system in the future:

A) the retirement age will have to be gradually increased in accordance with longer expected lives.
B) the government may have to raise the payroll tax rate or the maximum amount of taxable earnings.
C) the government may have to increase benefits to keep up with inflation.
D) benefits will only be paid to retirees with documented financial need after 2040.

Question 27

Suppose you are thinking about the implications of delaying retirement by one year.Which of the following provides you with an incentive to do so?

A) Since earnings generally rise with age,you get to replace a low-wage earnings year with a high-earnings year in the 35-year benefits average.
B) You will pay an extra year of payroll taxes on your earnings.
C) You will receive one less year of Social Security benefits.
D) Your potential benefits will be reduced if you wait to retire.

Question 28

In 1950,there were approximately __________ persons over the age of 65 for every 100 persons of working age.By 2050,there will be approximately ___________ persons over the age of 65 for every 100 persons of working age.

A) 2; 60
B) 13; 60
C) 12; 35
D) 40; 60

Question 29

Suppose that the primary insurance amount was changed so that it was indexed by the consumer price index minus 2 percentage points.Which approach to reforming Social Security would this be?

A) raising taxes further
B) extending the base of taxable wages
C) raising the retirement age
D) lowering benefits for all recipients

Question 30

In order to maintain a stable pay-as-you-go Social Security system when people are living longer:

A) average benefits could be increased and the payroll tax rate could be reduced.
B) average benefits could be reduced and the payroll tax rate could be increased.
C) the retirement age must be raised.
D) the payroll tax rate must be raised.

Question 31

Existing research suggests that each dollar of Social Security wealth crowds out approximately__________ of private savings.

A) $0
B) $0.35
C) $0.60
D) $0.85

Question 32

If a politician suggested that Social Security benefits be means-tested,which of the following approaches is that politician suggesting?

A) extending the base of taxable wages
B) raising the retirement age
C) lowering benefits for all recipients
D) lowering benefits for higher-income groups

Question 33

Which of the following would be a benefit of privatizing Social Security?

A) Savings would be managed by federally paid financial planners,thus insulating individuals from excessively high management fees.
B) Individuals with varying degrees of risk aversion would have options regarding how they wanted to invest.
C) Administrative costs are lower with privatization than with the federal program.
D) Government would no longer need to be involved in any way.

Question 34

If the ratio of people receiving Social Security benefits to the number of people paying Social Security taxes increases,then:

A) average benefits divided by average earnings must fall.
B) the payroll tax rate must be increased.
C) maximum taxable earnings could be increased to avoid either an increase in the payroll tax rate or a decrease in benefits.
D) there is no way to preserve benefits at their present levels.

Question 35

Which of the following is a reason behind the fiscal imbalance of Social Security?

A) Wage growth has slowed dramatically.
B) An increase in birth rates has occurred over time.
C) People are not living as long.
D) More covered workers have immigrated to the U.S.

Question 36

Which is a moral hazard effect of Social Security?

A) Retirees die sooner than they would without Social Security.
B) Workers retire sooner than they would without Social Security.
C) Retirees buy less health insurance than they would without Social Security.
D) Workers work longer and become more unhealthy than they would without Social Security.

Question 37

Which of the following is NOT true about poverty among the elderly and Social Security expenditure since 1959?

A) Elder poverty has been constantly decreasing in the past 50 years.
B) Poverty rates for the elderly have been increasing over the last 10 years.
C) In 1959,35% of the elderly were living in poverty,compared with 9% in 2009.
D) The steepest reductions in poverty were during the 1960s and 1970s.

Question 38

Suppose that someone wishes to address the problems with Social Security by mandating that those now exempt from Social Security have to enroll.That approach is equivalent to:

A) raising taxes further.
B) extending the base of taxable wages.
C) raising the retirement age.
D) lowering benefits for all recipients.

Question 39

If a politician proposed that Social Security be made more solvent by increasing the amount employers pay into the Social Security program,which approach is that politician advocating for the reform of Social Security?

A) raising taxes further
B) extending the base of taxable wages
C) raising the retirement age
D) lowering benefits for all recipients

Question 40

Explain the two fundamental problems related to investing the Social Security trust fund in the stock market.

Question 41

What would be the redistributive implications of fully privatizing Social Security? How does this compare with the current system?

Question 42

Suppose the federal government allowed you to invest a portion of your payroll taxes in a personal retirement account.Assume that you could earn a higher rate of return on that money than you could have through Social Security.How would you expect that higher rate of return to affect the timing of your retirement?

Question 43

Under one plan for Social Security reform,younger workers would be able to put up to $1,000 of their payroll taxes into an individual retirement account (IRA)in exchange for accepting lower benefits when they retire.However,the supporters of this plan typically offer a method of ensuring that the funds in the IRA are turned into benefits that work in a Social Security-like fashion (e.g.,monthly payments until one dies).
(a)What restriction could policy makers implement to ensure that the money in the IRA would be paid similarly to Social Security?
(b)Why wouldn't policy makers simply allow individuals to accept a lower level of Social Security benefits in exchange for a lower level of taxation without also mandating that individuals put the saved tax funds into an IRA?