Due to its antiquated methods of forecasting, the Social Security Administration vastly underestimates how long it will be before the Social Security trust fund runs dry, warned Gary King, 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.
Social Security began running a deficit in 2010. Before that, when Social Security was running a surplus, the surplus was used to purchase treasury bonds. (One part of the government lent money to other parts of the government, essentially.) That debt now comprises about $2.7 trillion of the U.S. government's roughly $16.4 trillion debt. Now that Social Security is no longer running a surplus, it will cash in those treasury bonds, which means that Social Security will be partly funded by general revenue or by borrowing more money.
The SSA currently estimates that those treasury bonds will cover Social Security shortfalls until 2033. This estimate, King and Soneji argue in the journal Demography and in a Sunday editorial for The New York Times, is off by about $800 billion by 2031.
The reason the SSA's estimates are so flawed, they say, is that it is still using statistical techniques from the 1930s, when Social Security was created, rather than advanced techniques that have been developed since then.
"Remarkably, since Social Security was created in 1935, the government's forecasting methods have barely changed, even as a revolution in big data and statistics has transformed everything from baseball to retailing," they wrote.
King is well known in the field of political science as one of the foremost authorities on the use of statistics and empirical research in the social sciences.
One of the problems, King and Soneji said, is that those in charge of the forecasting model are all actuaries, and statisticians and social science methodologists are not well represented in the department.
Tough choices should be made to Social Security now, King and Soneji advise, because the longer the country waits to reform the program, the "more disruptive any change will need to be to keep Social Security alive."
King and Soneji suggest several possible reforms: raise the retirement age (currently at 67) to 69 or 70, increase the limit (currently at $113,700) on how much of a salary is subject to the payroll tax, lower the rate of growth of the cost-of-living allowance, or means test the program so the wealthy will not receive as much in benefits. They also suggest having a conversation about whether the government should even encourage retirement in the first place, given that those who retire live shorter lives.
King and Soneji have made their paper and calculations available online here.