Social Security, It’s Even Worse than you Think
If this doesn’t get your attention and open your eyes, you have a problem!
From CNBC:
The Social Security Administration projects that its trust funds will be depleted by 2033—not an optimistic forecast. But it may be even bleaker than that.
New studies from Harvard and Dartmouth researchers find that the SSA’s actuarial forecasts have been consistently overstating the financial health of the program’s trust funds since 2000.
“These biases are getting bigger and they are substantial,” said Gary King, co-author of the studies and director of Harvard’s Institute for Quantitative Social Science. “[Social Security] is going to be insolvent before everyone thinks.”
Read MoreWill you miss out on Social Security benefits?
The Social Security and Medicare Trustees’ 2014 report to Congress last year found trust fund reserves for both its combined retirement and disability programs will grow until 2019. Program costs are projected to exceed income in 2020 and the trust funds will be depleted by 2033 if Congress doesn’t act. Once the trust funds are drained, annual revenues from payroll tax would be projected to cover only three-quarters of scheduled Social Security benefits through 2088.
Researchers examined forecasts published in the annual trustees’ reports from 1978, when the reports began to consistently disclose projected financial indicators, until 2013. Then, they compared the forecasts the agency made on such variables as mortality and labor force participation rates to the actual observed data. Forecasts from trustees reports from 1978 to 2000 were roughly unbiased, researchers found. In that time, the administration made overestimates and underestimates, but the forecast errors appeared to be random in their direction.
“After 2000, forecast errors became increasingly biased, and in the same direction. Trustees Reports after 2000 all overestimated the assets in the program and overestimated solvency of the Trust Funds,” wrote the researchers, who include Dartmouth professor Samir Soneji and Harvard doctoral candidate Konstantin Kashin.
Read MoreHow Social Security funding affects your retirement
The administration’s Office of the Chief Actuary produces the forecasts. Stephen Goss, the chief actuary since 2001, was unavailable to comment and has not seen all of the new research, an administration spokesman said.
However, Goss published a 2013 note that outlined the SSA’s projection methodologies. The note was written in response to 2012 research by King and Soneji that found the Social Security Administration underestimated how long Americans will live and projected that the trust funds would be depleted by 2031, two years earlier than the government has estimated.
“The projections developed by the Office of the Chief Actuary for the Trustees Reports are intended to reflect all aspects of future possible trends in demographic, economic, and programmatic factors, given current Social Security law,” Goss and other SSA officials wrote. King and Soneji’s projections “were within the range of reasonable uncertainty as specified in the Trustees Report, and therefore should cause no alarm.”
But King argues that the agency should reveal more about how they produce their forecasts and publish an annual evaluation of its forecasting performance to avoid forecasting bias. Social security programs in other countries and other U.S. government agencies, such as the Congressional Budget Office, the Census Bureau and the Bureau of Labor Statistics, routinely publish self-evaluations of their forecasts, he said.
King and the studies’ co-authors confidentially interviewed former and current Social Security Administration actuaries involved in the forecasting process as part of their research to figure out why the forecast bias happened since 2000. He noted that actuaries are in the center of a political firestorm over the future of Social Security as lawmakers debate whether to cut benefits, raise taxes or a combination of both. “Actuaries worked really hard at being unbaised,” he said. “We find no evidence that they bend to political pressure.”
But the agency’s attempts to be unbiased have created a bunker mentality, he said, which lead them to ignore evidence that Americans life expectancy has risen more than they have projected and how that could hurt the future funding of Social Security system.
“The issue is not the people,” King said. “If you swap out the people and kept the same procedures, you would very likely get the same result.” He urges the administration to openly share their data and methods with the public so outside researchers are able to replicate their forecasts and contribute to their improvement.
Read MoreSocial Security on ‘unsustainable path’: Analyst
The bigger problem with the Social Security Administration is not disclosure, it’s accounting, said Laurence Kotlikoff, a Boston University professor of economics and co-author of “Get What’s Yours,” a New York Times best-seller about how to maximize claiming Social Security retirement benefits.
Kotlikoff applauds the efforts for more disclosure, but wants the agency to calculate its liabilities using fiscal gap accounting, which considers the difference between the government’s projected financial obligations and the present value of all projected future tax and other revenue.
The Social Security Administration projects its unfunded obligations out 75 years in the annual trustees’ reports. Kotlikoff wants the administration to calculate unfunded obligations using the “infinite horizon,” which accounts for funding after 75 years. Under this accounting system, SSA’s projected unfunded liabilities would be $24.9 trillion (instead of the $10.6 trillion projected in 2088).
Trustees noted in their 2014 report that “the degree of uncertainty associated with estimates increases substantially for years further in the future.”
Yet 17 Nobel Prize-winning economists have endorsed Kotlikoff’s push for the SSA and other government agencies to use the fiscal gap accounting method more broadly.
“We have a situation that is like Enron accounting,” Kotlikoff said. “And the public doesn’t want to hear about it.”
Read MoreSocial Security is hot topic for aging boomers
While King and Kotlikoff differ on how the Social Security Administration can improve its reports, they agree that better information about Social Security’s financial health will enhance the public debate and help lawmakers fix the program before it’s too late.
“Fair, transparent and accurate forecasts give Congress more of a chance to consider of all the policy proposals to preserve the solvency of Social Security,” King said. “And it’s easier to make changes to Social Security now than in the future.”
Never thought that I would agree with you. But I do!
I think our unemployment is higher that what is reported, but I don’t know if it is as bad as shadow stats reports. I think people are getting by, but the economy is definitely not robust, and the biggest difference between now and the 1930′s is how many people are living off government programs and assistance (about half).
We entered the age of poor GDP growth, a consumer nation that no longer consumes as much, a nation where savers are punished with record low interest rates, and where the nanny state provides the sustenance for half the people through government programs and assistance. Think of how different of a time we are in where half the people access some kind of welfare payment, food stamps, tax exemptions, long periods of pay for unemployment (where you get paid more than going back to work), programs to let people that rack up $100K student loans get out of them unscathed, and home affordable refinance programs (where people get to refinance to save their rears, when really they had no business being loaned the money in the first place, just like most student loans).
In a real economy, the country produces something. America used to be the engine of the world and a nation that made quality items, had new innovation, and inspired the rest of the world. Now the perception of the USA is that is has become the world police with a nation of fat whining people, where everything must be overly PC or someone is offended, only half the people actually work and contribute to taxes while the other half sucks on the government teat. The only thing that has helped us along over the last decade is the internet, smart phones & their apps, and social media companies; so I wouldn’t call that a foundation to win on globally.
The BRICS continue to due their best to distance themselves from the West, the Middle East is done with the West and our Petrodollar, and more and more exchanges are being done without the dollar invited to the party as noted on the article Cory posted this week.
Sure, people have smart TVs, Tablets, smart phones, and more fuel efficient cars, and I don’t think hunger is anywhere close to where it was during the dust bowl, but the macro picture tells a different tale. We’ve mortgaged and leveraged the future earnings of everyone that does still find a job to pay for TARP, the Home Credit, Cash For Clunkers, Energy efficient tax credits, QE 2 & 3, and whatever comes next. We had cheap thrills that future generations will pay for dearly on the global stage, but the politicians that passed them and many sheeple that accepted them will be dead before the real ramification show up over the next 10-30 years….so who cares right? Wrong.
So the next step is larger and larger taxation, which causes businesses to flee overseas, steals away more jobs, and so then they go after more taxes on investors or will try to raid pension funds. Look at what a mess California is or Illinois with their high taxes and this is why businesses have been fleeing those states for the last decade. That same pattern is about to play out Nationally as the government is broke, and has to continually raise the debt ceiling (their credit card) to meet the absurd debt obligations and all these government programs and the war machine.
While the average person has a little bit better lifestyle than the 30′s due to advances in technology & food production, that doesn’t mean the dollar got stronger (because it got much weaker since the 30s), that wages are better on a percentage basis (because they aren’t) or that more people are working now. The fallacy with saying “hey we don’t have 25% unemployment now like then” totally misses the point…..
The fat American cow is at home living off government assistance and isn’t working….they’re ordering a biggie size meal and having it delivered to their house so they don’t have to get off the couch an do too much work. The few us, like us, that have jobs and do contribute to society and taxes, pay the burden of all the other lazy people, illegal immigrants, and fund the charades of the government takeover of every aspect of our lives, of large “too big to fail corporations”, and a manipulated marketplace.
1) We should scrap Federal Income taxes and go to a flat consumption tax so that everyone that buys something (through their own hard work or through government hand outs) all get taxed the same. I don’t like working to pay for other peoples hand outs and think we should all be in it together.
2) Illegal immigrants get shipped out for cutting in line or sneaking into the show. Anything less is a slap in the face to people that actually go through the proper channels to gain citizenship, get a SS#, and actually contribute to the tax burden, as it is currently set up.
3) Quit punishing businesses to death with taxes or mandates to force a minimum wage. If they made it attractive to do business in the US then jobs would come back from overseas, and if they reduced down all the friggin’ rules and compliance that is choking the life of companies, then we may see some growth. Make it attractive to compete for business in the US and companies will be able to pay their workers what the marketplace decides is fair, instead of government mandates for $15 minimum wages and other such nonsense.
4) Only the bottom 5-10%, that are in real need, should get access to all these government “entitlement” programs. The rest…..get off the sofa and get back to work.
5) Unemployment should be capped at 3 months, then you need to get your butt working (not 18 months where you go golfing/fishing and live it up on the taxpayer dime for a year and a half, and then finally put a resume out there). If it is not your dream job, get over it, stop whining, and go get one of those wonderful jobs quoted in statistics at McDonalds, Walmart, or Office Depot. Sink or sail, but no more hand-holding for the masses.
6) Keep a close eye on the robots replacing people trend, and ask yourself how the job numbers will look when just 20-30% of jobs are done by machine instead of man. How many more will want unemployment benefits for 18 months or food stamps then?
“Day will keep paying and take all you have ! Diss is the PLAN !”
The criminals in DC are going to tax the shiite outta us.
Tax’em good and hard and then tax ’em again. That is what they will do.
“Tax’em to the stone age, son! I love the smell of tax increases in the morning.” to paraphrase Colonel Bill Kilgore.
…..and then tax em’ once they’re dead one more time……
Yeah, and then they’ll prolly dance on our graves…assuming we will even be able to afford a grave.
funny Ebolan.
Am I seeing things or was that one old lady counting Chinese RMB notes?!? They trying to tell us something? I guess they are hinting that Uncle Mau is going to be funding out social security bennies. Scary.
Day will keep paying and take all you have ! Diss is the PLAN !