Probability and Social Security

by Bruce Webb

The above two figures are from CBO’s Aug 2008 study on long-term Social Security solvency. I am not going to discuss them in depth but just point out that we trap ourselves when we say Oh-mi-God Social Security depletion moved back from 2041 to 2037!!” when the reality is that it is just the center point of the probability distribution that so moved. There is still a 50% chance that the result will be better than that and of course 50% that it will be worse. But we are free to act in such a way that moves that probability ban the other way. The Northwest Plan just being the simplest.

Of course there is also a 10% chance that Social Security if left alone actually ends up over-funded even if we do nothing at all. Meaning we should not freak out every time the mid-point of the distribution moves.