Social Security Update

SOCIAL SECURITY UPDATE….The 2006 Social Security Trustees Report is finally out, and the headline number is that the projected “exhaustion” date for the trust fund has changed from 2041 to 2040.

Why the gloomy news? There were two big changes in SSA’s actuarial assumptions. On the plus side, they finally increased their projection of long-term productivity growth a bit, from 1.6% to 1.7%. On the negative side, they reduced their projection of long term real interest rates from 3.0% to 2.9%. The overall impact was to make the solvency of the trust fund look a bit worse than last year.

Demographic projections were brighter than last year: the trustees now predict a higher fertility rate but not much change in death rates. Immigration assumptions, which are probably overly conservative, didn’t change. Disability rates were projected a bit higher.

To give you a quick read on the changes, I’ve merged the “Key Assumptions” tables from 2005 and 2006 below along with some commentary in red. More later.