Infinite Social Security Solvency Projections
October 8, 2015
The 2015 Technical Panel on Assumptions and Methods reviewed the assumptions specified by the Board of Trustees and to evaluate the methods used by the Office of the Chief Actuary to project the future financial status of the Old-Age and Survivors Insurance and Disability Insurance Trust Funds.
Social Security's actuaries and Trustees have an enormously difficult task — projecting demographic and economic developments over the next 75 years and conveying to Congress and the public, in a comprehensible fashion, the health of the program and the associated risks.
Since Social Security operates basically on a pay-as-you-go basis, the number of people paying into the system compared with the number of people receiving benefits is a key component of program cost.
- The large increase in fertility rates in the post-war period followed by the sharp reduction and flattening out of fertility rates in subsequent decades to the present explain in large measure the changing fortunes of the OASDI trust funds being experienced now.
- Immigration is a volatile, unpredictable, poorly-understood, and increasingly politically-driven process, and that the long-range projections of immigration are exceptionally challenging.
- The rise in Social Security Disability Insurance claims over the past three decades stems from: rising incidence; population aging; and female catch-up in insurance coverage and incidence.
It is difficult to frame infinite horizon numbers, whether very large positive or negative, in a manner that makes them meaningful or useful to policymakers or the public. This would especially be true if the growth rate in annual deficits exceeded the discount rate.
Given the enormous uncertainty of long time horizons, Social Security solvency projections based on calculations to infinity should not be continued. However, should be done if and only if the government prioritizes a deeper discussion of the long-term sustainability of the Social Security system's finances.
Source: "2015 Technical Panel on Assumption Methods," Social Security Advisory Board, September 2015.
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