Senior women pours money out of purse
‘Round about two weeks ago, I wrote that, despite projections to the contrary, the Social Security Trust Fund was at significant risk of far earlier depletion than it’s “official” 2035 projection. In the first place, the economic difficulties we’re now experiencing and might well be experiencing for some time to come mean that it’s more appropriate to look at the “high-cost” rather than baseline scenario, in which the combined Trust Fund becomes depleted in 2031; what’s more, a more pessimistic short-term scenario could move the depletion date to as soon as 2027.
Now, a new analysis by the Bipartisan Policy Center confirmed my calculations/interpretation. (The analysis dates to April 22, but it’s new-to-me due to its mention today in a column by Owen Conflenti at Click 2 Houston.)
Their analysis looks back to the Great Recession and its patterns in payroll taxes and increased benefit claiming, as well as estimates of the impact of Covid-19 on mortality. They simulated four different recessions to look at the impact on the Trust Fund. A second Great Recession would result in a combined Trust Fund depletion date of 2029 — and that same result is generated if the recession mimics the Great Recession precisely or if it is shorter, only two or three years, with a faster recovery. In their fourth scenario, they modeled a “Double Great Recession” in which tax revenue cuts are twice as severe and benefit outlays are likewise doubled; in this scenario, the Trust Fund is depleted in 2026.
Now, again, in the short term, I know better than to imagine that Congress will truly reform Social Security — and if the Democrats win the presidency and take the Senate as well, those who would substantially increase Social Security’s benefits might be given free rein, especially given the desire among many Democrats to use not merely deficit spending but more explicitly money-printing to finance spending programs, and given the Biden campaign’s tapping of “Modern Monetary Theory”-advocate Stephanie Kelton as economic advisor.
And, again, my ongoing position on the Trust Fund has been that debates about the ending date are all a bit meaningless and academic; what matters far more is what level of spending on the elderly we can afford in light of changing old-age dependency ratios, and how we should fund it. That Trust Fund exists has been a device used to stall these important discussions, but, at the same time, the fact that we are only part-way through a dramatic movement in that ratio has also enabled us to stall on reforms, perhaps justifiably so. Remember, the ratio was reasonably stable at 18 – 19 retirement-aged people per 100 working-age people until about a decade ago, and is on its way to growing to almost twice that before leveling off in 2035 or thereabouts.
United States Old Age Dependency Ratio, per World Bank
Even this graph is misleading, though: it measures the number of people age 65 or older relative to those age 15 – 64, not the number of those actually retired vs. those working. As a 2015 Brookings article noted, this may be much less relevant if the average retirement age continues to climb as it has in the United States, or if women enter the workforce in larger numbers (as Japan has been attempting to encourage), but, on the other hand, intensified insofar as young adults spend more time in education and less time in the workforce. And it should go without saying that a “true” dependency ratio in a time of large-scale unemployment will look all the worse.
So what does this all boil down to?
The risk is high that politicians and policymakers will need to figure out how to make the math work on Social Security not during a time of prosperity, but at a time of all manner of competing priorities.
Is it something that we need to deal with this instant? No. But we do need to be mindful that the bill will come due.
As always, you’re invited to comment at JaneTheActuary.com!