In 1983, the federal government chose the latter course. Consequently, it abandoned the “payas-you-go” system used for nearly a half century. (Under that system, social security taxes collected equaled the benefits that were paid out each year.) The excess FICA taxes collected and put into the trust fund each year are commonly referred to as the surplus (approximately $160 billion for 2003). At the end of 2003, the Social Security Trust Fund totaled approximately $1.5 trillion. (This amount is expected eventually to increase to over $2 trillion.) The Social Security Administration has invested the funds in U.S. Treasury bonds.

Required 1 Taking a consolidated perspective, what conclusions would you draw?
2 Why would an agency of the federal government purchase Treasury bonds from the U.S. Trea¬
sury Department? {Hint: You need to know what the Treasury Department does with the money received.) The Web site for the U.S. Government’s 2003 consolidated financial statements is http://www.gao.gov/special.pubs/03frusg.pdf.
3 What conclusion would you draw if the $1.5 trillion had been lent to private corporations?
The following requirements are optional — check with your mstructor.
4 Assume that you are 27 years old and will earn $50,000 a year for 40 years and have $3,100 of social security taxes withheld each year (withholding rate of 7.65% - 1.45% for Medicare = 6.20%; $50,000 X 6.20% = $3,100). Your employer will match this amount. Using an ordi¬
nary annuity table, how much would you have accumulated after 40 years assuming that you had invested the $6,200 yourself and earned 5% on your investment each year?
5 Using an ordinary annuity table and the future value amount calculated in requirement 4, how much would you be able to withdraw each year if you planned to live 10 years, 20 years, and 30 years beyond age 67?
6 What will be your actual social security benefits beginning at age 67 (use the social security cal¬
culator on the web site of the Social Security Administration).
7 If the government allowed you to opt out of social security and invest on your own, would you?
8 If all individuals were required to invest on their own (and had the same annual salary), how much would be invested in total at any point in time (assume 100 million full-time workers in the economy)?