This article originally appeared on LifeHealthPro.com’s sister publication, AdvisorOne.
Washington’s restoration of the employee’s portion of the payroll tax that funds Social Security may be good news or bad news, depending on your perspective.
But what seems definitely to fall into the latter category is new research indicating that Social Security, even with the fresh funding boost, is on shakier ground than generally thought.
In a Sunday New York Times op-ed, researchers Gary King of Harvard and Samir Soneji of Dartmouth argue that the Social Security Administration is using outdated methods to project longevity and therefore understates the system’s shortfall.
The two professors forecast that Social Security’s trust funds will be depleted two years earlier than the government’s current 2033 estimate, meaning there are just 18 years before a program that Americans across the board support and rely on faces a funding crisis.
The issue comes at a time when discussions of spending and taxation are near on the political calendar, but while partisan rancor and stalemate are unusually high as well. Nevertheless, King and Soneji warn “the longer we ignore the problem, the more disruptive any change will need to be to keep Social Security alive.”
The basis for their timeline compression, discussed at length in a longer article in the academic journal Demography, is a finding that the Social Security Administration projections underestimate Americans’ longevity and omit significant health trends, like reduced smoking and improved treatment of heart disease.
Specifically, King and Soneji say that Social Security relies heavily on actuaries using 1930s-era forecasting methods, but seem to have missed the revolution in big data and employ few statisticians capable of making accurate predictions. The result, they say, is that “more retirees will receive benefits for longer than predicted, supported by the payroll taxes of relatively fewer working adults than projected.”
The two researchers, with the cooperation of the Social Security Administration, examined how the agency made its forecasts and found its methods are prone to error and political interference.
“This may explain why the agency’s forecasts have, at times, changed significantly from year to year, even when there was little change in the underlying data,” they write.