Shocking News About Social Security Solvency!

“Reports that the Social Security system will soon run out of money
have been greatly exaggerated.”
So begins an amazing article from the Yahoo Finance Retirement pages. I say “amazing” because it contradicts what has become conventional wisdom about social security. I was lucky to find this analysis by Dr. Irwin Kellner, chief economist for Marketwatch.com and Capital One Bank. It is dated April 19th on Yahoo Finance, and supposedly came from MarketWatch.com, although I cannot find the original there.

I am always interested when I read a credible analysis that goes against conventional wisdom. It reminds me of Galileo daring to venture that the earth might not be the center of the universe, or more currently, almost any scientist who dares to risk his or her job by even questioning the popular global warming dogma … but I digress.

The conventional wisdom that Dr. Kellner is challenging is, of course, that social security is “running out of money,” and “will be broke by… (fill in the date). And since we all know that the 76 million baby boomer population bubble is just beginning to hit retirement age, this “wisdom” makes perfect sense. But the Social Security Administration’s most recent OASDI (Old Age Survivors and Disability Income) Trustees Report doesn’t paint that bleak a picture… at least if you read it, as Kellner did.

Consider this. In the 2000 OASDI Trustees Report, the Social Security actuaries forecast a trust fund “exhaustion date” of 2032, 32 years away from that time. Today it is 2041, 33 years away. So in the last eight years, we have actually GAINED a year of breathing room. And the Congressional Budget Office estimate is a more generous 2051. How can these vary so much? Well, it makes a huge difference what growth rate you assume for our economy.

According to Dr. Kellner, there are actually THREE projections made, with different assumed rates of growth. The most modest one actually forecasts two recessions in the next few years, and slow growth from then on. The other two project annual growth rates in Gross Domestic Product of 2.3% and 2.9% respectively. The 2.3% assumption is the one that generates the estimate of social security exhaustion of 2041.

Now here is the amazing part. Under the 2.9% GDP growth rate assumption, the Trust Fund NEVER REACHES AN EXHAUSTION DATE. Rather, it bottoms out at a few hundred billion and begins to grow again. So what is the likelihood of hitting the most optimistic scenario? According to the Trustees Report, between 1967 and 2006, our GDP grew at 3.4% (!!!), which makes 2.9% seem quite attainable. This revelation is HUGE! And it is one that you will never hear from the major media. Why? Because it isn’t scary or negative.

Now I am all in favor of being conservative when it comes to projections, especially that far out into the future. And I’m also on record as being in favor of making whatever changes are necessary in social security, especially changes that make the system more “work friendly” for those 80+% of boomers who plan to keep on working well into their so-called retirement years.

But what has me agitated is that this topic has been reported in such a fear mongering way, with terms like the “Silver Tsunami” and the “Population Bomb,” that a large number of younger Americans are now convinced that social security won’t be there for them, and a large number of boomers are making an ill-advised decisions by taking their benefits as soon as possible out of the same conviction…

….when all we really have to do is grow our economy at somewhere between 2.5 and 2.9% per year, or failing that, tweak the system as necessary. What’s so hard about that? - Bob

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