In the escalating debate for the future of Social Security,
forecasts are popping up faster than prairie dogs at dawn. But
forecasts without context can be misleading.
Here are answers to some key questions on the issue - and a
correction. First, the questions:
Will today's young people receive healthy Social Security
pensions when they retire?
Yes, for political reasons, if none other. The share of seniors
in the voting-age population is projected to reach 27.2 percent by
2040. If Congress falls over itself to issue subsidies to farmers,
who make up less than 2 percent of the population, it's
inconceivable that politicians would offend such a huge bloc of
voters by not providing adequate financial care for their
retirement. Even if lawmakers approve a system of private accounts
and the financial returns are poor - as they have been in Britain -
Congress would step in to look after those hardest hit by the
Will the Social Security system run out of money?
Yes, in 2042, if the current system is untouched. That's the
estimate by the Social Security Administration. The Congressional
Budget Office puts off that date 10 years. But even if the trust
fund runs dry, the system would still be collecting payroll taxes.
So after 2042, Social Security would be able to pay at least 70
percent of promised benefits. That 70 percent will have more
purchasing power than today's Social Security pensions because
pensions are based on average incomes at retirement. Presumably,
American real incomes will rise over the next nearly four decades.
But taxpayers will feel the pinch starting in 2018. That's when
Social Security is expected to begin paying out more than it takes
in. As the system dips into its trust fund, Congress will have to
act. For decades, it has disguised the size of US budget deficits by
counting the trust fund as income. In effect, it has spent money
promised to future retirees. The solution is to raise taxes, cut
spending, add to government debt, or reduce Social Security
benefits. Given retirees' voting clout, don't expect benefit cuts.
Are these projections accurate?
It depends. Demographic projections are reasonably good, since
most of those born today will be around in 75 years. But other long-
term assumptions, such as growth rates for the economy and for
productivity, are really unknowns, yet crucial to calculations. If
longevity rises faster than in the past, the Social Security system
will have a bigger problem supporting more old people. If families
decide to have more children than they do today, the extra workers
in 20 years would ease the strain. Future immigration levels will
also play a role.
Now, the correction, with an apology. On Dec. 27, this column
cited a calculation by Stanley Logue, a retired defense-industry
analyst, that suggested that investing in the stock market didn't
necessarily produce a superior return, even over long periods. …