A Social Security False Alarm?
I stumbled onto an interesting article the other day by Dr. Irwin Kellner from MarketWatch (via Yahoo! Finance). In it, Dr Kellner analyzes a recent report titled “The 2008 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds”, also known as the Board of Trusties for the Social Security program…
“Reports that the Social Security system will soon run out of money have been greatly exaggerated.”
Seems like each year the study is done, it yields rosier results:
“In 2000, the system’s actuaries thought the assets of this fund would be exhausted by 2032. Two years later it was 2037. Now the projected exhaustion date is 2041.
Meanwhile, the Congressional Budget Office, which makes these projections as well, recently thought the system will remain solvent until at least 2052.”
I suppose some could ascribe devious political motives to these results, but it seems that this is really due to the formula that is used to compute the costs of the Social Security program:
“…the actuaries have made and released not one but three projections. They call them low cost, intermediate and high cost.
The projection that has provoked these alarms is the intermediate projection. This reflects the trustees’ consensus views regarding such inputs as economic growth, productivity, inflation, earnings, employment and interest rates.”
At the heart of each method of calculating the end of Social Security funds is the assumption of economic growth – the faster the economy grows, the longer the program is solvent:
“The intermediate projection assumes that the economy will grow by an annual rate of 2.3% per year between now and 2085. This may be higher than the 1.9% per year that was projected as recently as three years ago, but it is still well below the 3.4% that the economy grew on average between 1960 and 2005.”
And if the economy grows at a sufficient rate, then we get the result reported by the Social Security actuaries?
“The actuaries’ own low cost projection assumes an average annual growth rate of 2.9% between now and 2085. This is higher than the 2.3% pace embodied in the intermediate projection, but it is still well below the 3.4% average of the past.”
“Under the actuaries’ low cost projection, the Social Security system never runs out of money.”
Well, that sounds great!
I don’t know about you, but I’m going to continue to ignore Social Security benefits where my retirement planning is concerned. If the system is still around when I retire, and I’m actually entitled to any of the money I’ve been forced to put in over the years then all the better.
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Click here to read the full report.
I agree we are not depending on our Uncle Sam to be there. You know how some relatives can be.
We are working plan B. Putting as much as we can into 401′s and saving like crazy where we can.
If your Uncle and Mine shows up at the end with some money and I should have it coming all the better.