Look to Congress, Not Demographics, For Social Security’s Challenges
I look forward to taking the Academy’s Social Security Challenge as described by Linda K. Stone in her March/April Contingencies article, “Are You up For the Challenge?” I applaud the name change of this updated Academy educational tool from “The Social Security Game” to “The Social Security Challenge.”
In her article, Ms. Stone asks, “How did Social Security finances get to this challenging state?” I’m going to challenge her answer that it was primarily due to demographics by referring readers to Actuarial Note 2022.8, an annual supplement to the OASDI Trustees Report. This supplement “documents the changes in actuarial status of the OASDI program since 1983 by providing a disaggregation of the change in actuarial balance into several components.” I refer to Table 1 of this document as a “gain/loss analysis by source” for Social Security.
This table shows that out of the total 2022 long-range actuarial balance of -3.43% of taxable payroll, 0.14, or -4%, was attributable to “Demographic Data and Assumptions.” Therefore, I conclude that the demographic assumptions used in the 1983 Trustees Report were pretty darned good, and demographics doesn’t appear to be the primary source of the growth in the system’s long-range actuarial deficit since 1983.
If I had to answer how Social Security finances got to this challenging state, I would say that it is because Congress has ignored the system’s declining financial condition since 1984. This is clearly shown in Table 1 of Actuarial Note 2022.8. Since 1984, the trustees reports have been consistently delivering the message that the system is no longer in long-range actuarial balance and the deficit has generally been growing from year to year. One other thing that this table shows (but is not discussed in the annual OASDI reports) is that even if all assumptions are realized going forward, the system’s long-range actuarial deficit is pretty likely to increase each year due solely to changes in the 75-year valuation period.
In implementing the Social Security Challenge, I believe the Academy should take reasonable steps to emphasize that the system’s long-range actuarial balance measure and other valuation results (like the projected date of trust fund exhaustion), are based on assumptions about the future that may not be realized. The Academy should also avoid implying that certain reform actions will “fix” the system (or “solve” the problem) for 75 years (or any specified period of time) in the future. I believe the following language, already included in the current Social Security Game, should be prominently displayed in the new Social Security Challenge:
The following should be noted when interpreting results from the Social Security [Challenge]:
- The 75-year actuarial balance calculation used in the game does not consider significant revenue shortfalls expected to occur after the end of the 75-year projection period, and thus possible solutions illustrated in this game are generally not sufficient to achieve “sustainable solvency,” a concept discussed in the Trustees Report.
- The possible solutions assume immediate adoption of System changes, rather than gradual implementation. If changes to the System are gradually implemented, the required increases in tax revenue or benefit decreases will need to be larger than noted in the [challenge] to achieve actuarial balance.
- The success of reforms will depend on how well actual future experience compares with the assumptions made by the trustees and the Social Security actuaries. There is no mechanism in current Social Security law to maintain the program’s actuarial balance once it has been achieved. Thus, there can be no guarantee that the System’s long-term problem will be “solved” for any specific length of time by enacting various system changes.
The new tool should also address the potential for future system cash-flow issues associated with packages of hypothetical reform proposals (particularly those involving deferred tax increases or deferred benefit decreases) and should, in general, document and disclose any known limitations of the new tool pursuant to the intent of section 3.2 of ASOP No. 56.
Walnut Creek, Calif.
Humble Pie Chart Is 2% Crow
Perhaps this letter should be directed to the ABCD for counseling or to those in charge of continuing education, but I’m sending it to the editor of Contingencies magazine. I am wondering about page C3 of the January/February 2023 edition of Contingencies and page 3 of The Magic School Bus booklet.
On those pages we see the same pie chart—a pie chart showing the percentage parts of the whole. But the parts add up to 102%, not 100% … that is 68% + 11% + 3% + 8% + 12% = 102%. I’m a retired old guy and I no longer keep up my continuing education and I certainly don’t do any actuarial work, but I am delighted to say that I can still add numbers.
Is there a lesson here that I am missing? Are the kids trying to put one over on Ms. Frizzle? Or are the kids and Ms. Frizzle trying to put one over on Aunt Maxine?
Whatever the case, as someone who rubs shoulders with actuaries frequently, I am hoping that you will step in and tell us that your investigation has revealed that the kids are pretty smart, and they took the 66% piece of the pie and stuffed it with an extra 2% crow to see if anyone would notice.
PS. Here’s a picture of me and my trusty assistant, Bobby. Bobby says. “It’s easy to tell us apart, I’m the good-looking one—and the brains of this outfit!”
Ann Arbor, Mich.
[Editor’s note: Well spotted, Mr. Likins. The Academy noticed the error in the book after the first printing and fixed it for subsequent print runs; consider yourself the proud owner of a collector’s edition. As for the graphic on C3 of the magazine, that ad was created using the original graphics assets, so the error slipped through. I’m sure if we had Bobby on staff, he’d have spotted the gaffe on the galleys.]
More Feds May Be On Track for Retirement Than Feared
I enjoyed the January/February 2023 Contingencies article “Doing the Math,” by Steve M. Niu, but I have a comment. The article gave some easily accessible comparisons of how federal employees hired after 1983 participating under the newer Federal Employees’ Retirement System (FERS) and Thrift Savings Plan (TSP) compared to those hired before 1984 participating in the Civil Service Retirement System (CSRS). One back-of-the-envelope observation that Niu made was that the “average” post-1983 federal employee would need an estimated TSP balance of $490,000 break even with a pre-1984 CSRS participant and that only 7% of TSP participants have a current balance in excess of $500,000. This was, admittedly, a very simple calculation and Niu immediately followed it with a discussion of how military members could skew the results.
My comment is that the estimated $490,000 is the amount needed at age 62, but the table of information about TSP balances is as of the current age. Presumably, the average age of the current employees is much younger than 62 so the average employee would need much less than $490,000 to be on track to break even. We’d need to make some additional assumptions and the data presented in the article is rather thin. Most likely, an average current TSP balance needed to break even would fall in the range of $50,000 to $250,000 which, based on Table 1, would indicate that somewhere between 15% and 40% would be on target to break even, higher than the 7% figure given.
Epigenetics May Play a Role In Obesity
In Sam Gutterman’s article “Are We Indifferent to Mortality Deficits?” (November/December 2022), he cites obesity as one of the causes of the increase in mortality rates, which is attributed to behavioral factors—“too much affordable fast and processed food that is convenient and tasty; limited ‘free’ time or energy for physical activity; too much stress; and not enough sleep!” What he does not cite is the possibility of damage to the epigenome caused by exposure to various toxic chemicals and pollutants.
The emerging science related to epigenetics has shown that many diseases not only may be attributable to environmental factors, rather than behavioral factors, but also that these diseases may be inherited. More research is needed, as well as a reassessment of the possible solutions.
John P. Frederick