Predicting the Future of Social Security

The Social Security Administration Board of Trustees is required by law to project the financial health of the Social Security program for the next 75 years. Predicting the future of a complex system like Social Security is no easy task -- it requires estimating the future productivity of the American economy, growth in wages, birth rates, divorce rates, immigration, and life expectancy and many other factors. Predicting any one of these variables accurately is challenging enough -- plugging all of them into one formula makes for a cloudy crystal ball indeed.

To help compensate for these unknowns, the trustees actually make three projections for Social Security's future: a "Low Cost" projection (the most optimistic), a "High Cost" projection, and an "Intermediate" projection. Generally, when you hear figures about Social Security's financial future, you are hearing the Intermediate projection.

The trustees most recent Low Cost projection tells a different tale. If the Low Cost model were correct, the Social Security Trust Fund would not face a deficit any time within the 75 year projection period, and would be sitting on about $70 trillion in reserves by 2080.

Some economists have argued that even the Low Cost, optimistic scenario is far too conservative. Robert Gordon, a respected economist at Northwestern University, argues that productivity and immigration growth would far exceed the Social Security Trustees most optimistic projections, which he called "pathetic." If Gordon's is right, the most difficult decision Congress will need to make about Social Security would be how much to cut taxes.