Are the Social Security projections biased? We often hear predictions about Social Security that either seem overly dire or optimistic, but never seem to come true.
The Social Security Administration projects that its “trust funds” will be depleted by 2033—not an optimistic forecast. But it may be even bleaker than that, according to CNBC network.
New studies from Harvard and Dartmouth researchers find that the SSA’s actuarial forecasts have been consistently overstating the financial health of the program’s trust funds since 2000.
“These biases are getting bigger and they are substantial,” said Gary King, co-author of the studies and director of Harvard’s Institute for Quantitative Social Science.
“[Social Security] is going to be insolvent before everyone thinks,” he said.
The Social Security and Medicare Trustees’ 2014 report to Congress last year found trust fund reserves for both its combined retirement and disability programs will grow until 2019. That’s good news. But program costs are projected to exceed income in 2020 and the trust funds will be depleted by 2033 if Congress doesn’t act.
Projections show that once the trust funds are drained, annual revenues from payroll tax would cover only three-quarters of scheduled Social Security benefits through 2088, according to CNBC.
Consistent reports on Social Security financial indicators started in 1978. The researchers examined forecasts published in the annual trustees’ reports from 1978 until 2013. They compared the forecasts made regarding variables like mortality and labor force participation rates and compared it to the actual observed data.
Forecasts from trustees reports from 1978 to 2000 were generally unbiased, researchers found.
During that time, the administrations made overestimates and underestimates, but the forecast errors appeared to be random in their direction.
“After 2000, forecast errors became increasingly biased, and in the same direction. Trustees Reports after 2000 all overestimated the assets in the program and overestimated solvency of the Trust Funds,” wrote the researchers, who include Dartmouth professor Samir Soneji and Harvard doctoral candidate Konstantin Kashin.
“In the 1980s, for example, their conservative projections underestimated revenues and overestimated costs, missing the mark for the period by $27 billion in all. In the 1990s, the actuaries were similarly conservative, this time erring by about $200 billion. But in the first decade of this century, the forecasters proved overly optimistic, overestimating revenue and underestimating costs, with the total error reached nearly $1 trillion. (All amounts are in constant 2010 dollars.)”
The research also points to the work of chief actuary of the Social Security Administration as being “systematically biased and overconfident.”