Social Security Monthly Balances: Oct update

Projecting the long-term health of Social Security is of necessity subject to uncertainty, the known unknowns if you will. But you can if you like sample the short term health by consulting Treasury’s Monthly Trust Fund Reports which gives balances to the penny with a one month lag, and compare them to the various projections of the 2008 Report. If it appears that the balances are coming in ahead of standard Intermediate Cost projections you can conclude that the outlook is by that amount better than expected. If those balances are coming in ahead of (fully funded) Low Cost then you have a limited reason to claim there may be no shortfall at all. On the other hand if the numbers look to not quite making it to IC levels then you want to pay some attention.

So how is Social Security holding up in the face of a recession now officially a year old? Well, looks like we need to pay some attention.

The 2008 Report projected that the year end balance in the OAS (Old Age/Survivors) Trust Fund would be:
Intermediate Cost $2.216 trillion and Low Cost $2.221 trillion up from a starting balance of $2.023 trillion

Actual numbers:
June (half year) $2.140 trillion
Aug (2/3rd) $2.164 trillion
Sept (Q3) $2.177 trillion
Oct $2.187 trillion

In June OAS had a balance up $117 bn from starting, if July to Dec simply duplicated that we would have a year end balance of $2.257 trillion or significantly ahead of even Low Cost numbers. But even then anyone who was paying attention knew there was trouble ahead and as things are playing out we will be lucky to end up within $10 billion of Intermediate Cost and so $15 billion from Low Cost. Not the best news but in perspective it means that our portfolio would only increase by 95% of expectations. (Note that this still translates to a big surplus for 2008, just not as big as we hoped.)

How did DI (Disability Insurance) fare? Well this is a real interesting story. Projections:
Intermediate Cost $219 billion and Low Cost $221 billion up from a starting balance of $214 billion

Actual numbers:
June (half year) $220 billion
Aug (2/3rd) $219 billion
Sept (Q3) $219 billion
Oct $218 billion

At mid-year things were looking pretty good, already the balance was up by some $6 billion and already beating IC projections. Certainly adding another billion and so matching Low Cost by year’s end in principle was in reach. Except for those pesky numbers in the business pages. Not only is DI not adding to its balance in the second half of the year, it is losing a good part of the progress made in the first half.

What does all of this mean? Well on my reading it shows that Social Security is a pretty robust system. And this makes certain sense, an increase in unemployment that puts hundreds of thousands of people out of work (say from 5% to 6%) is from another perspective just over 1% of all covered hours (94%/95% = 1.1%). This doesn’t mean we want to keep throwing these employment numbers at Social Security for an extended period of time, though I have never had much reason to discuss the more pessimistic High Cost scenario it like Low Cost is ‘out there’ and we are openly flirting with it right now. But even High Cost looks pretty good when your 401k is 40% plus off its peak.