Social Security: It's Worse Than You Think
January 16, 2013
Congress and President Obama have pushed through a relatively modest stopgap measure to avoid the "fiscal cliff," but over the coming years, the United States will confront another huge cliff: Social Security, say Gary King, a professor of government and director of the Institute for Quantitative Social Science at Harvard, and Samir S. Soneji, a demographer and assistant professor at the Dartmouth Institute for Health Policy and Clinical Practice.
- For the first time in more than a quarter-century, Social Security ran a deficit in 2010.
- It spent $49 billion more in benefits than it received in revenues and drew from its trust funds to cover the shortfall. Those funds -- a $2.7 trillion buffer built in anticipation of retiring baby boomers -- will be exhausted by 2033, the government currently projects.
Those facts are widely known. What's not widely known is that the Social Security Administration underestimates how long Americans will live and how much the trust funds will need to pay out -- to the tune of $800 billion by 2031, more than the current annual defense budget -- and that the trust funds will run out, if nothing is done, two years earlier than the government has predicted.
King and Soneji reached these conclusions, and presented them in an article in the journal Demography, after finding that the government's methods for forecasting Americans' longevity were outdated and omitted crucial health and demographic factors.
Remarkably, since Social Security was created in 1935, the government's forecasting methods have barely changed, even as a revolution in big data and statistics has transformed everything from baseball to retailing.
To save Social Security, which has lifted generations of elderly people out of poverty, tough choices have to be made.
- One option is to continue raising the retirement age, perhaps to as high as 69 years old or 70 years old.
- A second option is to increase payroll taxes.
One factor that might be considered is new research suggesting that retirement itself, although popular, may reduce life expectancy by breaking lifelong routines and disrupting deep social connections. One might question how much government policy should actively encourage retirement, as opposed to merely making it an option.
Source: Gary King and Samir S. Soneji, "Social Security: It's Worse Than You Think," New York Times, January 5, 2013.
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