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October 23, 2007


Speaking as an actuary, I will agree with Brendan that Medicare is in worse shape than SS. In addition to the timing of when the trust fund is exhausted, it's a lot easier to fix SS. A combination of increased retirement age, reduced benefits and/or reduced inflation adjustment will do the trick. Fixing Medicare is harder conceptually. We can hardly exclude treatments that are now covered, and the age 65 has been a fixed point.

But, I disagree with the analysis of SS in two ways:

1. The Trust Fund isn't supposed to go to zero. The SS Actuarial definition is that SS solvency means that the Trust Fund will be adequate for 75 years. By that official definition, SS is currently insolvent.

2. It's not entirely true that "The Social Security Trust Fund is scheduled to last until 2042, at which point we'll have to hike up taxes or trim spending a bit." The year 2042 is correct, but not the other part of the sentence.

Due to an accounting change during Reagan's administration (of which I disapprove) excess funds going into SS have been counted as offsetting the budget deficit. That is, SS is currently collecting more money than it pays out. That difference is counted as income to the federal budget. (It's true that the excess funds go to the federal budget, but there is an offsetting debt that the federal budget owes to the SS system. That's why I disapprove of counting that money as income to the federal budget.)

We are already at a point where we have to hike up taxes or trim spending a bit (or report a bigger deficit.) Why? Because, even though SS is producing a surplus, the size of the surplus is decreasing. So, the 2007 budget gets less relief from SS than 2006 did, and 2008 will get less relief still.

Thus, the impact of SS on the budget deficit is already occurring. It will continue to grow indefinitely until or unless the plan is reformed.

I agree with the actuary.

I have a financial problem when my last dollar is spent. Knowing I won't spend the last dollar for a few years is not comforting unless I am also aware of a new stream of income within that span.

I question the assumptions that the SSA is working off of, most notably the projections of life expectancy. How accurately has the SSA forecast increases in longevity?

We 'found' trillions of dollars for 2 elective wars and for a wall street bailout - surely, if these problems with S.S. exist, the government can find the money necessary to supplement the program.

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