Measuring Social Security’s Financial Problems

Authors

Abstract

The U.S. Social Security system has helped keep many retirees out of poverty. However, according to the Social Security and Medicare Trustees, Social Security faces a future financial shortfall of $10.4 trillion in present value. This enormous imbalance has received little attention in public debates about Social Security. Instead, the media and policymakers continue to focus on the program’s trust fund and several other ad-hoc measures that create a misleading impression of the size of Social Security’s financial problem. Although the Social Security Trust Fund is not projected to be exhausted until 2042, Social Security’s $10.4 trillion present value imbalance is accruing interest and will grow by $600 billion during 2004 alone. The current cash-flow federal budget, however, is biased against reforms that would improve Social Security’s finances. As shown herein, a new federal accounting system would remove this bias.

Citation

This MRRC working paper was subsequently published as:

Gokhale, Jagadeesh ,and Smetters, Kent. “Measuring Social Security’s Financial Outlook within an Aging America.” Daedalus: Journal of the American Academy of Arts and Sciences (Winter 2006): 91-104.

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Project

Paper ID

WP 2005-093

Publication Type

Working Paper

Publication Year

2005
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