That is to say, the government already spent the money it received for the IOUs placed in the Social Security Trust Funds.
Interest rates have been below 2 percent for most of 2016, and revenue generated from interest payments made to the Trust Funds has been declining since 2009.
Like other government-issued bonds, those bonds pay interest and are real assets; however, the way the federal government accounts for the Trust Funds masks the true scope of the costs passed on to future generations.
Even though bonds are real assets to the private market, coming generations of taxpayers or borrowers will have to cover the cost of future redemptions of bonds issued today because the federal government used the money it received from Social Security to pay for education, wars, and other items.
Under current law, even if we do achieve a “Goldilocks” range of interest rates and economic growth, Social Security finances will still remain on an unsustainable trajectory.
Essay On Social Security Retirement Five Types Of Expository Essays
The 2016 Social Security Trustees Report shows a continuing trend toward insolvency of both trust funds irrespective of interest rates.
Delaying a claim until age 70 results in a 32 percent higher monthly benefit whether or not a low-interest-rate environment perseveres. To a first approximation, high interest rates have positive effects on Social Security finances.
But what would happen if interest rates rose 500 basis points? If, however, the high interest rates were in response to an overheated economy, thereby leading to a recession and job losses, payroll tax revenue would decline.
I’ve spoken on Social Security and retirement security issues at various events in recent years.
At times, I’m asked what low interest rates mean for the financial security of today’s retirees, to which I reply with a joke: “Why does the Federal Reserve hate old people?