[Excerpt] The system of publicly-provided old age pensions, known in the United States as "Social Security," faces serious financial difficulties. As in other countries, the problems are of both a short run and a long run nature. The short run problem is that the U.S. Social Security system has very meager financial reserves; the revenues coming into the system are barely enough to cover commitments. In the long run (i.e., after 2010, when the post World War II baby boom generation reaches retirement age), the financial problems of Social Security will intensify, due primarily to population aging and the consequent decline in the ratio of workers to retirees. For an elaboration of these problems, see Thompson, 1983.
These problems have led to proposed reforms aimed at assuring the financial stability of the systems. The question addressed here is: what effects will these reforms have on three variables - retirement ages, retirement incomes, and the Social Security system. This paper presents estimates of the effects of four actual or proposed policy changes. The basic model and some of the estimated effects are drawn from previous work; see Fields and Mitchell (1984) and the references cited therein. However, the estimates presented here of the effects of Social Security reforms on the Social Security system itself are new.