5. Suppose the average Social Security benefits in the nation are $12,000 per year. The number of Social Security pension recipients is currently 50 million. There are 150 million workers in the workforce this year and the average taxable wage per worker is $25,000 per year. a. Calculate the dependency ratio for the nation. b. Calculate the average replacement rate for Social Security retirees. c. Calculate the tax rate on wages necessary to pay Social Security benefits this year assuming the system is operating on a pay-as-you-go basis.

5. Suppose the average Social Security benefits in the nation are $12,000 per year. The number of Social Security pension recipients is currently 50 million. There are 150 million workers in the workforce this year and the average taxable wage per worker is $25,000 per year. a. Calculate the dependency ratio for the nation. b. Calculate the average replacement rate for Social Security retirees. c. Calculate the tax rate on wages necessary to pay Social Security benefits this year assuming the system is operating on a pay-as-you-go basis.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

5. Suppose the average Social Security benefits in the nation are $12,000 per year. The
number of Social Security pension recipients is currently 50 million. There are 150
million workers in the workforce this year and the average taxable wage per worker
is $25,000 per year.
a. Calculate the dependency ratio for the nation.
b. Calculate the average replacement rate for Social Security retirees.
c. Calculate the tax rate on wages necessary to pay Social Security benefits this
year assuming the system is operating on a pay-as-you-go basis.
d. Suppose the number of retirees is expected to increase to 75 million in the next
ten years while the labor force remains at 150 million. Assuming nothing else
changes, calculate the tax rate necessary to pay promised benefits on a pay-as-
you-go basis. What can be done to lower this tax rate?

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