Social Security’s financial projections receive periodic criticism — either for being too optimistic or too pessimistic. Sunday’s New York Times, for example, devoted a full page to an opinion column with the scary headline “Social Security: It’s Worse Than You Think.” Its authors charge that the projections are outdated and inaccurate and that they understate future improvements in longevity. But the column is highly misleading and needlessly alarming.
Social Security’s trustees issue annual projections of the program’s finances for the next 75 years. Such projections are necessarily uncertain, especially for the later years. Over the past 30 years, however, the trustees’ projections of changes in longevity have proven remarkably accurate.
For example, in 1983, the last time that Congress enacted major Social Security legislation, the trustees projected that the average life expectancy for someone turning 65 (that is, the mid-point for men and women) would rise from its then-current 16.5 years to 18.7 years by 2010. The actual life expectancy at age 65 in 2010 turned out to be exactly that — 18.7 years — although the improvement has been greater than projected for men and less for women.
The trustees project that average life expectancy will continue to rise and reach 20.2 years by 2030. The authors of the Times column argue that the improvement in longevity will be even greater because smoking has declined, but they ignore the many other variables affecting the financial projections, such as the rate of growth of wages. They also imply that the trustees’ methodology produces “crazy death rates,” but the estimates they depict are their own extrapolations — not the trustees’ actual assumptions.
Every four years, an independent panel of distinguished economists, demographers, and actuaries reviews the methodology and assumptions underlying the trustees’ report. The most recent panel, which issued its report in September 2011, found that the trustees’ projections for the next 50 years are, if anything, a bit too pessimistic. Adopting the panel’s recommended changes to the trustees’ assumptions would add a year of solvency to the Social Security trust funds.
Although Social Security can pay full benefits for two decades even if Congress does nothing to close the program’s long-term funding shortfall, prompt action would permit changes that are gradual rather than sudden, allowing people to plan their work, savings, and retirement with greater certainty. But policymakers and the public should not be panicked by false claims about Social Security’s finances.