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Lies, Damned Lies, and Statistics

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In a previous column, I reported that Social Security would go bankrupt in 2022. I didn’t make that up; I got the information from the Office of Management and Budget’s proposed budget to Congress. But on April 23, the Social Security and Medicare Trustees released their report, which claimed that Social Security would go bankrupt in 2033. Why the discrepancy?

My son Nicholas once had a statistics professor who started his course by explaining that: “There are lies, there are damned lies, and then there are statistics.”

They are manipulating the statistics.

First, the trustees are using a 75-year life expectancy to calculate their numbers. But current life expectancy for most Americans exceeds 80. They are not setting aside enough money to pay for the extended life expectancy. This supports the OMB’s assertion of 2022.

Second, Jim Moore from PIMCO mutual funds pointed out that the trustees assume a real interest rate that is double what the current real inflation-adjusted interest rate is. PIMCO further informs us that long-term interest rates could fall below 1 percent. Lower interest rates require more capital to provide promised benefits. This also supports the OMB’s assertion of 2022.

Statistics are misrepresented by the government in other areas as well. Let’s review a few: 

Medicare. When the Medicare trustees released their report, the Medicare actuary immediately disavowed it as inaccurate. Our industry jokes that actuaries are accountants with less personality, but we need their expertise. Actuaries are about the math. The actuary says the trustees used favorable statistics that were unlikely to be achieved. Therefore, Medicare is expected to go bankrupt sooner than the reported 2024.

Inflation. The government reports inflation at 2.9 percent. The inflation calculation does not include energy, food or health-care costs. Do you think inflation would be higher if those costs were included?

Unemployment. The government says the rate is 8.1 percent. That number does  not include part-time workers looking for full-time work or people who have received the maximum unemployment benefit and dropped off the records. Inclusion of these people raises unemployment to between 15 percent and 22 percent. The fact that a million fewer jobs are available to Americans also impacts the unemployment rate.

Many other issues are manipulated to look better than they are. We see this done with taxes, housing, health care, interest on the debt and many other issues.

It is time to take off the rose-colored glasses. Americans face great financial danger in the years ahead. Our top priority is to always keep our prospects and clients financially safe. To provide that safety, we must fully understand the nature of the risk. Help your people navigate safely through the next downturn.

For more from Van Mueller, see:

Make Every Minute Count

The Future of Social Security

Your Financial Success Is Closer than You Think