Late in 2014, the Center for Retirement Research at Boston College reported that the Social Security Administration’s (SSA) trust fund would be completely drained by the year 2033.
As daunting as that report was, it now appears that the problem may have been understated.
Ivy League researchers have now discovered that the SSA’s forecasts have been misrepresenting the solvency of the Social Security program’s funds since the year 2000.
In last year’s report to Congress, the Social Security and Medicare Trustees found that trust fund reserves will continue to grow until the year 2019. Starting in 2020, program costs are projected to exceed income due in large part to increasingly life expectancies among the Baby Boomer generation. According to last year’s forecast, those excessive costs are projected to deplete the trust funds by 2033 without a Congressional intervention.
But researchers from Harvard University and Dartmouth College went back and examined similar annual reports dating as far back as 1978—when those reports started divulging financial projections. Next, they compared the SSA’s predictions on factors such as mortality to actual, verifiable data.
The researchers found a few errors in reports dating from 1978 to 2000, but those errors were random in nature and both overestimated and underestimated the eventual outcomes. It wasn’t until the year 2001 that the projection began to consistently overstate the health of the Social Security program on the whole.
“After 2000, forecast errors became increasingly biased—and in the same direction,” wrote the researchers. “Trustees Reports after 2000 all overestimated the assets in the program and overestimated the solvency of the Trust Funds.”
While the Chief Actuary of the SSA, Mr. Stephen Goss, did not comment on the study, CNBC reported that in the past he has acknowledged the possibility of uncertainty in the SSA’s projections.
Researcher Gary King of Harvard’s Institute for Quantitative Social Science wrote that the SSA’s reports “miss important changes in the input data such as retirees living longer lives, and drawing more benefits.”
King argued that the SSA should provide greater insight into how they produce these forecasts by publishing an annual evaluation of their own performance. Many other U.S. governmental agencies, he points out, publish such studies and self-evaluation to improve public transparency.
Another researcher proposed a new accounting system that would help account for the discrepancies in the SSA’s reports. The Social Security Administration provides funding projections for its obligations 75 years into the future. For example, the 2015 report will account for the program’s projected financial status through the year 2090.
Under the new accounting system, researchers project that the Social Security fund will be short by almost $25 trillion in the year 2088—rather than the $10.6 trillion projected by the SSA last year.
“These biases are getting bigger—and they are substantial,” Gary King summarized. “Social Security is going to be insolvent before everyone thinks.”
