CBO’s Long-Term Projections for Social Security: 2009 Update

by Bruce Webb

Summary from Director’s Blog CBO’s Long-Term Projections for Social Security: 2009 Update
Full Report: Long-Term Projections for Social Security: 2009 Update

This newest report on the long-range health of Social Security shows a shape not much changed from last year’s but with some changes in the detailed dates and numbers. Per this report Social Security will be able to pay out “scheduled benefits” until Trust Fund exhaustion in 2043 and thereafter will be able to pay out “payable benefits” at a rate starting at 83% of scheduled benefits and then gradually sinking to 78% by 2083. Even after adjusting for inflation benefits after 2043 will be better than retirees get today in real terms even though they will be a smaller replacement percentage. That is our children’s retirement will be materially better than that of their grandparents if not quite keeping up with the working life gains of their own grandchildren. And this even if we don’t fix Social Security along lines suggested by the Northwest Plan for a Real Social Security Fix.

If we did decide to fix Social Security on the revenue side we are faced with a gap scored by CBO of 1.3% of payroll compared to the 2.0% SSA score. That is where the NW Plan, based as it is on the more conservative SSA number, would have a year two increased tax of around $1.50 per week for the median income household, under CBO numbers that would be down to just around a $1.00. (If anyone is interested in seeing why CBO and SSA come up with these different scores please consult App. B on pages 33-34.)

Important note. CBO figures typically show the 80% probability band, meaning there is a 10% chance that outcomes will be more positive and an equal chance they will be more negative. That is when examining Figure 1 above note that there is a small chance that Social Security will actually self-fund without changes even within the 80% band (the medium blue area of overlap) plus a small chance that it would even be overfunded once you add in the upper 10%. Also note that this distribution is somewhat stricter than many where a 90% band would be more typical.

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