Social Security's Future is Slightly Dimmer

Social Security actuaries are too cautious in their assumptions about future longevity, according to a yearlong study released in December by a panel of technical experts on social insurance. Greater-than-anticipated longevity for those who reach age 65--a key figure used to calculate how long benefits will be paid to retirees--will have an impact on Social Security's financial health, said economist Eugene Steuerle of the Urban Institute, Washington, D.C., who chaired the panel.

The Social Security Advisory Board established the 1999 Technical Panel on Assumptions and Methods--a group of private actuaries, economists and demographers--to analyze standard assumptions about wages, fertility, mortality, immigration and returns on government bonds. These assumptions figure prominently in the formula used annually by the actuaries to project the income and outgo of the Social Security Trust Fund.

The report moves the year of reckoning for Social Security solvency to 2033--one year sooner than the program's trustees estimated last April. If Congress makes no changes before then, the report estimates that the combined payroll tax on employees and employers would have to increase by 2.60% instead of 2.07%, benefits would have to be reduced or a mix of the two reforms would have to be enacted.

The panel noted other problems with the official computations. They stressed that future wage and productivity growth is likely to be slightly greater than levels the Social Security actuaries have anticipated and could "lead to an improvement in the actuarial balance." In addition, the group recommended that the program's actuaries expect a bit lower return than they now estimate on government securities in which surplus social Security revenues are invested.

The panel's recommendations are advisory to the program's trustees and the Social Security Administration. Review of trust fund projections by a nongovernmental group is done periodically.

 

The "1999 Technical Panel Report" is available at www.ssab.gov.

 

--Pamela J. Larson

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