Social Security's Demise Is Much Closer Than You Think

Social Security's Demise Is Much Closer Than You Think

By the Editorial Board of Investor’s Business Daily

Entitlements: Officially, Social Security has enough money to pay all its promised benefits until 2033. But a new study suggests this forecast could be wildly optimistic. And that spells big trouble for future retirees.

Every year, the Social Security Administration releases its Trustees Report, which projects the program's solvency - how much it will take in, how much it will pay out and how long the "trust fund" can cover revenue gaps - over the next 75 years.

The latest report says that Social Security can meet its financial obligations for about 18 more years. After that, the trust fund will be exhausted, and payroll taxes won't cover nearly all the benefit costs.

That's bad enough. But a new study by researchers at Harvard and Dartmouth shows that this day of reckoning will almost certainly come far sooner than that.

The authors compare previous Trustees Report forecasts about life expectancy, fertility rates and other variables to actual results. They found that these forecasts have grown increasingly unreliable.

Worse, since 2000 "the direction of the biases are all in the same direction, making the Social Security trust funds look healthier than they turned out to be."

For example, Social Security has been consistency underestimating life expectancy, which means that people are living and collecting benefits for longer than predicted. Underestimating life expectancy by just 1.3 years leads to 150,000 more people collecting benefits than predicted, the researchers note.

The Trustees Report has also overestimated the nation's fertility rate. In 2010, for example, 315,000 fewer children were born than predicted. This error makes the population look younger, which in turn makes Social Security's financial outlook seem healthier.

Likewise, the report has consistently overestimated the Trust Fund's assets and solvency.

Many of these forecasts are so bad that the actual results are often worse than the report's "worst case" scenario, which currently has the program becoming insolvent in just 14 years.

Incredibly, Social Security keeps most of the data that it uses to make these forecasts a closely guarded secret, and doesn't bother to evaluate its past mistakes, which is routine outside the agency.

This situation has to change, immediately. Without an honest accounting, the public has no idea how deeply Social Security is in trouble and no way to properly judge reforms needed to fix it.