Study Reveals Social Security Insolvent Sooner Than Expected

A new study has revealed “biased” forecasts by the U.S. Social Security Administration, suggesting the health of the system millions of Americans are depending on for their retirement is seriously overstated.

The study was published Friday in the Journal of Economic Perspectives, co-authored by Harvard Professor Gary King, a Ph.D. student at Harvard’s Institute for Quantitative Social Science; and an assistant professor at the Dartmouth Institute for Health Policy & Clinical Practice.

“Pretty much everybody who evaluates Social Security realizes there’s a problem … But the system is in significantly worse shape than their forecasts are indicating,” King told the Harvard Gazette.

These graphs reveal errors in Social Security Administration forecasts of two indicators of the health of its trust funds — the trust fund balance (a measure of inflows into the fund, minus outflows from it) and a measure of the overall cost of the program. Forecasts in the Trustees’ Reports until about 2000 had an error rate of around zero, indicated by a horizontal line. After 2000, the forecasts indicate that the balance in the fund is too high and the cost is too low, meaning that the fund is not as healthy as their forecasts indicate. (Source: Gary King)

In a second article, published Friday in Political Analysis, the Harvard-Dartmouth team attributed the growing bias to the “antiquated, ad hoc methods” of creating the forecasts, the Harvard Gazette reports. They suggest that otherwise laudable efforts to insulate the forecasts from political influence have resulted, somewhat ironically, in insulating the process from data that could improve their accuracy.

“The bias in their forecasts results in a picture that’s rosier than it really is,” King told the Gazette. “They’re not saying the system is in good health. Pretty much everybody who evaluates Social Security realizes there’s a problem … But the system is in significantly worse shape than their forecasts are indicating.

“This is a major problem,” he continued. “Social Security is the single largest government program. It lifted an entire generation of elderly out of poverty, and today affects the lives of almost every American. The forecasts are essential for ensuring the solvency of the Social Security trust fund, as well for Medicare and Medicaid, which together add up to half of the entire budget of the federal government.”

The inherent bias in the forecasts has become more pronounced since 2000, the study found.

“The study compared all forecasts made by SSA over the 80-year history of the program with its actual outcome, and found that its forecasts of the health of Social Security trust funds have become increasingly biased since 2000. Current forecasts are likely off by billions of dollars, and the program could be insolvent earlier than expected unless legislators act, the study found,” the Gazette reported.

The Social Security Administration scores all major policy proposals from both political parties, but has never reported margins of error for any. This graph shows that for their 10-year and 75-year estimates, and for the balance in the trust fund or the cost of the program, almost all the public policies the agency scored were smaller than the uncertainty in its forecasts. Only the small number of proposals scores (represented by green triangles at the bottom of the graph, below at dashed line) are statistically distinguishable from zero. This indicates that almost all of the policy scoring the Social Security Administration has done is essentially random noise rather than systematic signal. (Source: Gary King/Harvard Gazette)

While forecasting the health of the Social Security trust funds has long been part of the program — each year, the administration creates forecasts that look one, five, 10, 20, and even 75 years into the future — the study conducted by the Harvard-Dartmouth team is the first by anyone inside or outside of the government to evaluate their accuracy.

“It’s typically been difficult to conduct studies that evaluate forecasts, but the Social Security Administration has been around long enough that if they made a 10-year forecast a decade ago, by now we can look to see how they did,” Samir Soneji, assistant professor at Dartmouth and co-author of the study, told the Harvard Gazette. “There’s tremendous scientific value in evaluating real-world forecasts that were made by people who were really trying to figure out what the future was going to be like.”

What they found, King said, was that while forecasts were never perfect, they were largely unbiased for quite some time.

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