By law, the Social Security Trustees must try to predict how well it will do over a 75
year period. To do this, they make 3 different assumptions: a gloomy one, an optimistic
one, and an official, moderate one. Slow economic growth means slow wage growth and less
tax revenue to pay for benefits, so it matters what you think the economy is going to do.
In 1981 the
Trustees projected a long-term growth rate of:
2.1% in the gloomy
scenario
3.1% in their official, moderate scenario
BUT in 1998, they
predicted:
.6% in the gloomy
scenario
1.4% in their official moderate scenario
2.1% is their optimistic scenario
So what happened?
Previously 2.1% was as gloomy as it got!
In fact, the
average growth of the U.S. economy over the last 75 years has been nearly 3.5% despite the
Great Depression and the slow growth of the last two decades. (Even the last twenty years
have averaged more than 2.5% each year.) According to the Social Security actuaries, if
the projections are run using 2.5% as the growth rate, assets will exceed expenditures
through 2075 and beyond.
Percentage
by
which assets
will exceed
expenditures
through 2075:
(assuming 2.5%
average annual
economic
growth) |
Source: 1998
Annual report of the Board of Trustees of the
Federal Old-Age and Survivors Insurance and Disability Trust Fund |
