Social Security: Even More Insolvent Than You Thought

Along with having a decades-long career in accounting, finance, training and development, Tom Blumer has written at his own blog BizzyBlog.com, and several national online publications primarily on business, economics, politics and media bias topics since 2005.


At first, one doesn’t know whether to laugh or cry at research findings reported by two Ivy League profs in a co-authored column in the Sunday New York Times titled “Social Security: It’s Worse Than You Think.”

Actually, white-hot anger is more appropriate, given that what Gary King, a professor of government and director of the Institute for Quantitative Social Science at Harvard, and Samir S. Soneji, a demographer and assistant professor at the Dartmouth Institute for Health Policy and Clinical Practice, really told us, namely that the New Deal-era retirement system, thanks to its use of ossified actuarial calculations, is more insolvent than almost all of us knew.

The pair’s core finding, as presented in the Times: “[T]he Social Security Administration underestimates how long Americans will live and how much the trust funds will need to pay out — to the tune of $800 billion by 2031.”

There are at least three justifications for feeling righteously outraged.

The first has to do with the delay between when King and Soneji originally reported their core findings to the academic community and when they deigned to let the rest of the country in on their virtual secret.

The pair’s research paper, “Statistical Security for Social Security,” reported that “Social Security, especially the OASI program, may be in a considerably more precarious position than officially thought” because the government’s actuaries are ignoring the financial implications of life expectancy increases due to “the steady decline in smoking,” which more than offset decreases relating to “the rapid rise in obesity.” The estimated net effect they reported in their paper was “$730 billion less in the OASI and SSDI (Old Age and Disability) Trust Funds” by 2031 (I will get to the “Trust Funds” fiction and the $800 billion/$730 billion discrepancy later in this column).

The paper first appeared in Demography on May 17, 2012; the link from the their Sunday Times column to the web page containing the paper’s abstract is labeled “August 2012.”

This means that King and Soneji had credible evidence that Social Security is in far worse shape than most of us thought well in advance of the November 2012 elections. Apparently, they made no special effort to bring their work to the nation’s attention, even though virtually any credible center-right news outlet would have been extremely interested in their findings. In their Times column, King and Soneji almost seem to crow about the fact that Social Security was not a contentious item in the presidential contest between Barack Obama and Mitt Romney: “It was a rare issue on which both men agreed — and both were utterly wrong.” Well guys, if you knew they were wrong, why didn’t you say anything?

Further blame assignment is in order. How could Romney’s largely Northeast-based advisers have missed the article’s publication? Isn’t setting up Google Alerts on key terms supposed to part of Campaigning 101? Though it appears that Demography has been coding its web pages to avoid search engine detection, a Google Web search on the research paper’s first sentence shows that it should not have escaped detection last summer.

A very sad and worse possibility which cannot be ruled out is that Team Romney learned of the research and didn’t believe that bringing up Social Security’s unprecedented decay during Obama’s presidency would be a good idea. As we have so often seen but Republican campaigns have failed to learn, timidity does not win elections.

The second reason for outrage is the government’s decades-long failure to modernize its actuarial methodologies. King and Soneji show that the system currently uses assumptions based on “a combination of linear extrapolation and qualitative judgments,” which, though they were the best available frameworks many years ago, are now dangerously outdated and divorced from reality. Unfortunately, this is all too typical of what happens when entrenched government bureaucracies simply go through the same processes year after year after year without giving adequate or sometimes even any thought to whether they could or should be improved.

This debacle would never have happened if Social Security’s trustees had been outsourcing their annual actuarial reviews to one of the industry’s leading firms. These organizations live or die on their ability to develop credible and state of the art mortality estimates for their private and public clients. Social Security’s trustees should make outsourcing this work in future years while ordering the firm selected to follow the best available practices one of their first orders of business. Odds are they won’t — and that if they try, Obama and Harry Reid’s Senate won’t let them.

The final source of outrage relates to King’s and Soneji’s fictional presentation of how Social Security supposedly works in their research paper, their Times column, and that column’s accompanying flowchart.

Sentences from each of the pair’s three documents will demonstrate that what they tell readers about the Social Security’s “trust funds” is an exercise in sheer fantasy:

• Their research paper engages in laughable historical revisionism: “As a result of payroll taxes that generated revenue in excess of annual benefit outlays over the last 25 years, the trust funds have amassed large surpluses in preparation for the aging population.”

• Among their column’s claims: “(The trust funds are) a $2.7 trillion buffer built in anticipation of retiring baby boomers …”

• They saved the worst howler for their column’s graphic: “Current workers’ payroll taxes go into the Social Security Trust Funds — a bank account for current and future beneficiaries …”

What rubbish. Jay Leno could use these assertions as jokes on The Tonight Show and have most of his audience rolling in the aisles.

The real facts are these:

• The “trust funds” consist almost entirely of IOUs from the rest of the federal government. Congress has taken Social Security’s annual surpluses and spent them on other things for decades.

• The rest of the government currently has a balance of $11.5 trillion in “debt held by the public” (i.e., excluding “intergovernmental holdings” like the “trust funds”).

• Our supposed betters in Washington have run deficits of over $1 trillion during each of the past four years, and have added an even greater amount to the national debt during that time. Fiscal 2013, despite the fiscal cliff deal, appears to be on track to stretch that streak to five.

• Part of the government’s annual deficit now includes money needed to cover Social Security’s annual cash shortfalls, which, as King and Soneji have noted, began in 2010.

• Social Security’s ability to continue to pay benefits at current levels depends largely on the government’s ability to cover those annual cash deficits, which are projected to grow as far as the eye can see. Given that Obama insists that “we don’t have a spending problem,” there is substantial reason to believe that the government will not be able to cover those cash deficits several years from now.

The serious deterioration in Social Security’s viability we have seen in the past four years is partially due to the recession, but really has far more to do with the fact that the economy under Obama has failed to adequately recover from that recession. If the economy only grows by 2 percent per year, those paper entities known as the “trust funds” will run dry in an accounting sense well before 2031, perhaps by as much as a decade — assuming that the rest of the government’s finances don’t collapse sooner.

One indicator of how serious the system’s decay is can be seen in the fact that the $730 billion shortfall estimated in King’s and Soneji’s research paper ballooned to the $800 billion noted above in their Times column’s presentation. Though they may have refined their life expectancy data in the meantime, the higher number more likely occurred because their original paper used data from the 2011 Social Security Trustees Report containing calendar 2010 data, while their Times column instead used data from the 2012 report.

Parting question: What kind of impact would the failure to consider the life expectancy estimation problems King and Soneji cited have on the financial projections for Medicare and ObamaCare? None of us should be surprised if the twenty-year impact on those programs runs to several trillion dollars.

Freedom Center pamphlets now available on Kindle: Click here.

  • Rifleman

    Social security is around $70 trillion broke now. The federal government will be lucky to last 10 years spending at this rate. They aren't even slowing down the astronomical deficit, they're accelerating it. They aren't going to cut spending just because they don't make their revenue projections, and they'll never get what they can and will spend.

    • Asher

      I believe many people who are entitled and paid into S.S. will not get it at some point..they will be cheated out of it as we head for Greece.

      • Rifleman

        I've known all my life (born in 66, two years after a dp congress and president started blowing the money as soon as it came in) that I'd never see a dime of the money I put in it. My dad made sure I was real aware of that fact from an early age. It's way too late for people my age and the baby boomers before us to start getting upset now. They trusted politicians with the money for their retirement and health care in old age, and that money is long gone.

        That's also why taking over the rest of the health care system was so important at this time, and why it was so stupid to let them do it. A lot of people are going to have to die early and cheap, so they can write off the unfunded liabilities. Americans made the same entity that gets to write off all their unpaid bennies, and collect a portion of their estate when they die, the gate-keeper to their access to health care. A lot of people are going to be diagnosed too late for 'guidelines' to allow expensive lifesaving treatment, and they'll be sent home to take a pill.

        • Snow White

          The SS money has been spent as it came in since it's beginning. SS was never meant to be a retirement fund for the elderly. It was FDR's way of getting a destitute population to willingly pay taxes to pay off his supporters and for his socialist programs. From the beginning the money was "invested in govt. securities." and spent as it came in. If it had indeed been a retirement program the retirement age would not have been set 10 years above the average life expectancy at the time.

        • Mary Sue

          I have a sneaking suspicion it's all been orchestrated as an excuse for "population control" (hence the "death panels".

          • Rifleman

            The 'death panels' will be deciding the guidelines, which means we won't have access to the process. There's no arguing with, or appealing to, a guideline. Nobody the patient comes into contact with at the hospital or doctor's office will have the power to do a thing for them, but give them a pain pill.

        • Ronnie Jones

          Rifleman, thanks, I never thought of that. They have left no stone unturned. Rw

      • patron

        It's a common misconception that people pay into S.S. and are supposed to have that money returned to them, due in part to propaganda starting in elementary school by big government advocates. An article on here last summer showed how S.S. is only a tax to finance a big government program no different than food stamps or welfare.

        Big government advocates will play this card up until the day they are broke to prevent spending reforms, and then they will weasel out and use this card to say "Screw You" to current retirees so they can keep flying to Hawaii every year for vacation.

    • Andy Lewis

      You're a lying piece of chit. SS runs a surplus and everybody damn well knows it.

      • Andy Lewis

        Sorry, this comment was meant for the original article, not you.

        • Rifleman

          That's okay, I've got a thick hide, but social security has been running a deficit since '09 or '10. That's around two decades earlier than their 90s projections, and consistently being revised closer, not farther It was buried by the msm, of course, but it was in the news.

  • WilliamJamesWard

    Considering that Congress passed a law that forces the Postal Service to pay five and a half billion
    dollars a year to the Congressional general fund for financing the health benefits of retired
    employees 70 years out into the future. The people have not been born yet and with that much
    loss out of the revenue stream it will be disfunctional soon, this will cause other problems but
    think of it Congress knows it is broke and is stealing 5 1/2 Billion $$$ yearly from a mandated
    service for a purpose that is bogus, the majority of those who work for the Postal Service
    can not afford the high premium costs when retiring, insurance rates are bogus and beyond
    supply and demand realities. The finances of America seem to have originated in a crack pipe.
    These reports come out in drips and drabs to prepare Americans for the bad consequences
    of profligate spending. When your grandparents are eating dog food think on Obamas multiple
    million dollar vacations and the immigrants he brings here from Islamoland and puts them on
    Social Security……………………………………….William

  • John C. Davidson

    If you chek back and figure out what happened in 1929, you'll see the same pattern. The difference is, printing money has slowed things down a bit.

  • Gary King

    Thanks for your energy and attention! Getting the right people to pay attention is always difficult. For example, my coauthor and I made this information publicly available (in preprints, on my web site, at conferences, and elsewhere) way before the start of the presidential election but the national media gets to pay attention whenever it likes. How we all get our elected representatives to pay attention and try to come to a compromise to fix the problem is even more important, since the longer they wait the more traumatic the changes will have to be to keep Social Security solvent. And doing nothing is not an option: the law says that social security benefits will be cut automatically – probably by about 25% in one year – if the system becomes insolvent (as we predict will occur in 2031 if nothing is done). So liberals, conservatives, retirees, and workers all have a big incentive to save one of the most successful and popular government programs.
    Gary King

  • mike

    The situation with social security is only the tip of the iceberg. The reality is that with the manipulation of the currency and interest rates, even makes the option of personal responsibility very difficult. Savings are destroyed by the Federal government's policy of inflating the currency, and the deliberate effort to keep interest rates near zero means that you also do not have the option of an annuity based on a return on your savings. While stocks are touted as an alternative, investments in this arena can also be a fools errand, since the average investor's gains are reduced by inflation, and much of the 'return on investment" is illusory.

    Even social security has been jiggered by the government's calculation of the inflation rate so as to lower the government's pension liability. In addition, it is likely that this pension will be further reduced by making it means tested, by adjusting the proportion of the benefit that is taxed, and by further increases in full retirement age. Indirect methods will include making pensioners liable for increasing health care costs under Medicare part B and C, and by changing covered services, deductibles, co-pays and the like.

    The impact of all these changes will not be felt proportionately. Individuals on welfare will still be exempted from any responsibility for a proportion of the cost, and he proportion of the population on SSI will increase as criteria for disability are expended or adjusted.

    The net effect will be to reward irresponsible behavior and to punish responsible behavior. The consequences of this will be a social death spiral instead of a social security…

  • JacksonPearson

    Franklin Roosevelt, a Democrat, introduced the Social Security (FICA) Program. He promised:

    1.) That participation in the Program would be completely voluntary,

    2.) That the participants would only have to pay 1% of the first $1,400 of their annual incomes into the Program,

    3.) That the money the participants elected to put into the Program would be deductible from their income for tax purposes each year,

    4.) That the money the participants put into the independent "Trust Fund" rather than into the General operating fund, and therefore, would only be used to fund the Social Security Retirement Program, and no other Government program, and,

    5.) That the annuity payments to the retirees would never be taxed as income.

    Since many of us have paid into FICA for years and are now receiving a Social Security check every month — and then finding that we are getting taxed on 85% of the money we paid to the Federal government to "put away," you may be interested in the following:

    Q: Which Political Party took Social Security from the independent "Trust" fund and put it into the General fund so that Congress could spend it?
    A: It was Lyndon Johnson and the Democratically-controlled House and Senate.

    Q: Which Political Party eliminated the income tax deduction for Social Security (FICA) withholding?
    A: The Democratic Party.

    Q: Which Political Party started taxing Social Security annuities?
    A: The Democratic Party, with Al Gore casting the "tie-breaking" deciding vote as President of the Senate, while he was Vice President of the U.S.

    Q: Which Political Party decided to start giving annuity payments to immigrants?
    MY FAVORITE :
    A: That's right! Jimmy Carter and the Democratic Party. Immigrants moved into this country, and at age 65, began to receive SSI Social Security payments! The Democratic Party gave these payments to them, even though they never paid a dime into it!

    Then, after doing all this lying and thieving and violation of the original contract (FICA), the Democrats turn around and tell you that the Republicans want to take your Social Security away!

    And the worst part about it is, uninformed citizens believe it!

    • Mary Sue

      oh geez. These Dems…

  • Sussex Girl

    I saw recent information indicating that 59% of Boomers nearing retirement, so those in their late fifties/early sixties, have less than $50,000 saved for retirement. Why so little? My guess–they all bought the SSA scam. So instead of saving, they ran up credit card debt taking the kids to Disney World and remodeling the bathroom, thinking Uncle Sam had their back. How surprised will they be to find themselves in retirement eating at soup kitchens for lunch.

    • LindaF

      Well, that's not entirely true. I'm a Baby Boomer, who DIDN'T buy a home that rose in price, due to inflation – I was paying rent then. I spent my money on my children WILDLY – buying them food, clothing (mostly at resale shops), and a roof over their heads. I DID put money in retirement accounts – every time the economy tanked, our investments went south. They seldom did more than slightly recover by the time the next crisis hit.

      No, we didn't remodel the bath, or any other part of the house. I've only been to Disney World once – we paid for it in cash.

      Stop making assumptions about the crazy spending habits of BBs. I truly do resent being tarred with the brush of the credit card junkies. We're using what money we can making sure that we enter retirement (hopefully, within the next 5 years) with a bearable monthly expense, and with some money for small luxuries (like occasionally visiting our grandchildren).

  • Thomas Wells

    Don't worry, Obamacareless death panels will fix this.

  • tanstaafl

    Ponzi scheme.

  • http://pro-inwest.com.pl/userinfo.php?uid=17162 home invasion

    Draw your future home invasion with sweet home 3 DF irst advantage for this software, is compatible with Mac OS X, iLife,
    iWork, and professional software. This was my take away from the computer and cool-out?