Tuesday, March 29, 2005


Is Social Security Insurance?

I have recently heard debates as to whether or not
Social Security is insurance. I suppose that one can
always argue about the definition of unique programs,
like SS, but this one seems pretty clear to me.

I imagine that nobody would argue about disability or
survivor benefits from SS, but I would argue that even
retirment benefits constitute insurance.

Insuramce is a vehicle one buys to transfer risk. For
example, when you buy auto insurance, you transfer
some of the financial risk associated with hitting
others (unintentionally) with you car. The risk that
the SSA takes on is the risk that you will outlive
your ability to support yourself by working. It is
social insurance because the premium, social security
taxes, are related to income.

Of what import is this? When one considers the return
on SS taxes, it is necessary to consider the value of
the risk transferred, risk which has value regardless
of whether it comes to pass.

As always, thanks for reading.

Comments: Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?