Harvard Study: Social Security In Far Worse Shape Than Official Numbers Show
Over the last 15 years, the Social Security Administration’s Office of the Chief Actuary has consistently underestimated retirees’ life expectancy and made other errors that make the finances of the retirement system look significantly better than they are , a new study by two Harvard and one Dartmouth academics concludes. The report, being published by the Journal of Economic Perspectives, is the first, the authors say, to compare the government agency’s past demographic and financial forecasts with actual results.
In a second paper appearing today in Political Analysis, the three researchers offer their theory of why the Actuary Office’s predictions have apparently grown less reliable since 2000: the civil servants who run it have responded to increased political polarization surrounding Social Security “by hunkering down” and resisting outside pressures—not only from the politicians, but also from outside technical experts. “While they’re insulating themselves from the politics, they also insulate themselves from the data and this big change in the world –people started living longer lives,’’ coauthor Gary King, a leading political scientist and director of Harvard’s Institute for Quantitative Social Science, said in an interview Thursday. “They need to take that into account and change the forecast as a result of that.”
In its annual report last July, Social Security predicted its old age and disability trust funds, combined, would be exhausted in 2033 and that after that point the government will have enough payroll tax revenues coming in to pay only about three quarters of promised benefits. King said his team hasn’t estimated how much sooner the fund might run out, but described it as in “significantly worse shape” than official forecasts indicate.
In addition to underestimating recent declines in mortality (i.e. increases in life expectancy) for those 65 and older, the Actuary has overestimated the birth rate—meaning the number of new workers who will be available to pay baby boomers their benefits 20 years from now , the researchers assert. Before 2000, the Actuary also made errors, but they went in both directions and the Actuary was readier to adjust the forecasts from year to year as new evidence came in, King said. Since 2000, he added, the errors “all are biased in the direction of making the system seem healthier than it really is.’’
A Social Security spokesman said today that Chief Actuary Stephen Goss couldn’t comment on the papers because he wasn’t provided them in advance and is tied up today in meetings with the Social Security Advisory Board Technical Panel. But the spokesman pointed to an Actuarial Note which Goss and three colleagues published in 2013 in response to a New York Times op-ed by King and one of his current coauthors, Samir Soneji, an assistant professor at Dartmouth’s Institute for Health Policy & Clinical Practice. In that op-ed, they attacked the Actuary’s methods of projecting mortality rates and predicted the trust fund would be depleted two years earlier than predicted. In their response, Goss and his colleagues called King and Soneji’s methods of predicting death rates “highly questionable” and noted that the Actuary’s methods have been audited since 2006 by an independent accounting firm and received unqualified opinions.
Harvard Study: Social Security In Far Worse Shape Than Official Numbers Show – Forbes.