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New Study Warns Social Security's Finances Worse Than Thought
January 15, 2002
Opponents of Social Security privatization have made
something of a cottage industry in recent years out of attacking the
projections of Social Security’s trustees as too pessimistic. They
contend that, if the economy grows faster in the future than projected,
then wages and payroll tax revenue will rise, providing more than
enough revenue to keep the program going, without any need to
make significant changes. However, a new study by a pair of
demographers and economists at the University of California-Berkeley
suggests that projections about Social Security’s future
might not be pessimistic enough!
In "The Fiscal Impact of Population Aging in the U.S.:
Assessing the Uncertainties," Ronald Lee and Ryan Edwards report that "the chance for a really bad outcome is far higher than commonly
expected." Lee and Edwards argue that in the most pessimistic
scenario suggested by the Social Security trustees, the old-age
dependency ratio (the ratio of elderly to working people in the
population) reaches 56 out of every 100 by 2075. However, there is
a nearly 25 percent chance that the true dependency ratio will be
higher than that. In fact, if longevity continues to increase while
fertility declines, there is a 2.5 percent chance that the dependency
ratio could reach a stunning 82 per 100, or even higher. The pair
reaches their conclusions by reexamining projections for such areas
as mortality, fertility, immigration, and other factors.
Lee and Edwards warn, "Politicians may have to deal with
Social Security reform sooner than they now realize."
A second report, this one by the Congressional Budget Office,
also paints a gloomy picture of Social Security’s sustainability.
Uncertainty in Social Security’s Long-Term Finances: "A Stochastic
Analysis" looks at the probability associated with various assumptions
used to estimate Social Security’s financial future and concludes that,
while there is a 90 percent chance that Social Security will remain technically solvent through 2029 (including Trust Fund "assets"),
there is only a one percent chance that the program will stay solvent
throughout the 75 year actuarial period.
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