| Interest is introduced because the formula for benefits is based on what you paid in when and what the effective interest rate is from that time, i.e. just like putting the money in the bank and then getting it back with interest. I'm simply trying to show that you can have a system with defined benefits based rigidly on the individual contributions, and some interest rate formula, and yet have the actual cash flow be based on current with-holdings from workers, paying the current retires. You could do that EXACTLY if you could correctly predict both interest rates and population dynamics. SS in fact does try to do that, but of course since you can't predict things exactly its best to be a bit conservative, and hence try to run a little surplus that you invest. Which is exactly what SS has done. The surplus is the SSTF and it is IIRC, still growing, but only due to interest, the actual socking away of surplus with-holdings quite some years back, but the SSTF is still increasing a bit currently because of interest on the horde. The horde will start dwindling in a few years, again IIRC. But SS has also raised withholding % over time, which is another admission that projections were off. In the future they might well address that issue further by cutting the defined benefits. Both dials all you to continue to make a system function where the benefits are defined by a formula of what you individually paid in, while at the same time, being primarily cash flow funded by current employment with-holdings. No dichotomy there, despite what many might think... |
