4.3.1: Preparation 4.3

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Your next collaboration will focus on the Social Security program. Social Security provides income for people who are elderly or disabled.

The following information is from the Social Security Administration website:⁴

Social Security is financed through a dedicated payroll tax. Employers and employees each pay 6.2 percent of wages up to the taxable maximum of $160,200 (in 2023), while the self-employed pay 12.4 percent.

When a person reaches “full retirement age,” he or she can claim a full retirement benefit. If someone retires before full retirement age, he or she receives a lower benefit.

(1) Use the following information from the Social Security Administration website to answer the questions below.⁵

Full retirement age is the age at which a person may first become entitled to full or unreduced retirement benefits.

No matter what your full retirement age (also called "normal retirement age") is, you may start receiving benefits as early as age 62 or as late as age 70.

If You Retire Early

You can retire at any time between age 62 and full retirement age. However, if you start benefits early, your benefits are reduced a fraction of a percent for each month before your full retirement age.

The chart below lists age 62 reduction amounts and includes examples based on an estimated monthly benefit of $1000 at full retirement age.

Full Retirement and Age 62 Benefit By Year Of Birth

Full Retirement At Age 62

Year of Birth	Full (normal) Retirement Age	Months between age 62 and full retirement age	A $1000 retirement benefit would be reduced to	The retirement benefit is reduced by	A $500 spouse's benefit would be reduced to	The spouse's benefit is reduced by
1937 or earlier	65	36	$800	20.00%	$375	25.00%
1938	65 and 2 months	38	$791	20.83%	$370	25.83%
1939	65 and 4 months	40	$783	21.67%	$366	26.67%
1940	65 and 6 months	42	$775	22.50%	$362	27.50%
1941	65 and 8 months	44	$766	23.33%	$358	28.33%
1942	65 and 10 months	46	$758	24.17%	$354	29.17%
1943-1954	66	48	$750	25.00%	$350	30.00%
1955	66 and 2 months	50	$741	25.83%	$345	30.83%
1956	66 and 4 months	52	$733	26.67%	$341	31.67%
1957	66 and 6 months	54	$725	27.50%	$337	32.50%
1958	66 and 8 months	56	$716	28.33%	$333	33.33%
1959	66 and 10 months	58	$708	29.17%	$329	34.17%
1960 and later	67	60	$700	30.00%	$325	35.00%

(a) Who can collect full retirement benefits at age 65?

(b) At what age can someone born in 1950 collect full benefits?

SOCIAL SECURITY REFORM

There is concern about the Social Security program because it is projected to eventually run out of money. Based on the current program, the Social Security program is projected to be able to pay all benefits through the year 2033. After that, it will only take in enough money to pay three-fourths of benefits.⁶ There is broad agreement that the program should be reformed now to avoid this future budget problem, but there is not an agreement about how that should be done. The following are possible solutions that have been proposed:

Increase the tax rate for paying into Social Security.
Increase the limit on wages so that people pay Social Security on wages above $160,200.
Decrease future benefits.
Increase the retirement age.
Change the program into a system of private retirement accounts in which individuals invest their own money.

Projections about Social Security are based on many variables. One of these is life expectancy. Life expectancy is a prediction about how long people live on average. It is important to understand that this is a mean. When you studied mean in Module 2, you learned that a data set can have values far above or below the mean. If a large group of people has a life expectancy of 63 years, some people will die very young, even as infants, and some will live to be over 100.

This might lead you to ask if using a mean to measure life expectancy is very accurate. In Collaboration 2.7, you saw data sets with home prices in which the mean was not a good representation of the data because there were a few very high home prices that made the mean much higher than most of the data. Prices of luxury homes can be 10 or 20 times higher than the price of “average” homes. This makes the mean a poor representation of the data. The range of life expectancy is different because it has more defined limits. As of 2023, the person known to have lived the longest was Jeanne Calment, who died at the age of 122 in 1997.⁷ This is an extremely high age, but it is rare and represents the maximum possible age known. So, although it is twice an average age in the range of 60–70 years, it would not have much impact on the mean. This indicates that the mean is a fairly accurate way to summarize the data. This is useful when making projections about a large population. This is why life expectancy statistics are used for projecting costs for Social Security. But you should remember that these types of statistics are not always good predictors for individuals.

After Preparation 4.3 (survey)

You should be able to do the following things for the next collaboration. Rate how confident you are on a scale of 1–5 (1 = not confident and 5 = very confident).

Before beginning Collaboration 4.3, you should understand the concepts and demonstrate the skills listed below:

Skill or Concept: I can …	Rating from 1 to 5
understand the meaning and use of variables.
solve for an unknown variable in a linear relationship.
calculate a rate of change (slope) from data.
make a linear model given linear data in context.