From: Anna Rappaport <moderator@network-democracy.org>
Subject: Whose Numbers Are Right?
Throughout our discussions, we have seem various references to different studies, and it is clear that they reach different conclusions in their analysis. I want also to make a distinction between the projections by the social security actuaries and outside studies by experts.
Official projections: A review of the work of the social security system actuaries will show that they do not produce only one cost estimate each year. Rather, they produce three, to provide a range of results. The size of the expected actuarial deficit is very different in the three estimates, so that the estimates drive our notion of whether there is a problem. I would like to encourage those who want to understand the numbers to focus on the range and the uncertainty as well as the specific numbers.
The long term costs and benefits under any alternative depend not on the estimates made in advance but on the experience under the system. Some of the things which affect the actual costs include:
1. How many people are working, what they earn, and how many are unemployed
2. The size of the working age population which depends on rates of birth, death, disability, immigration, ages of retirement, etc.
3. When people retire
4. Rates of wage growth
5. Rates of inflation
6. When people die
There are many more variables. A great deal of work is done to produce estimates which are as accurate as possible, but conditions change, and what appear to be small changes in some of these variables can have a big impact over a long period. While there is not unanimous support for the official projections, I would like to point out that the social security system has a very qualified actuarial staff, and that in additional, there have been a number of technical panels of experts who have repeated reviewed the assumptions and methodologies used in these calculations.
Outside studies: Many outside studies have been undertaken by experts, with different qualifications and agendas. The results reach very different conclusions. The results are very sensitive to the assumptions made about investment earnings, when people will die, cost of running the system, etc. Many of these studies show single answers rather than a range of results. Before accepting the results, it is important to understand the assumptions and methodology used in the calculations. Some of the questions to ask include:
1. What rates of return have been assumed?
2. Have increases in wage rates been projected on the basis of an economic scenario which is compatible with the investment returns?
3. What is the assumption with regard to earnings sharing?
4. What administrative costs have been assumed, and how has it been determined that they are achievable?
5. If it has been assumed that death and disability coverage will be separately insured, has adequate provision been made for the cost of this coverage including coverage for those who are not healthy?
6. How are transition costs provided for?
For more information on the actuarial issues involved in understanding social security costs, contact the American Academy of Actuaries (www.actuary.org).
