Social Security’s Life Expectancy Debate

For the past decade, the Congressional Budget Office (CBO) has
projected lower 75-year deficits than the Social Security trustees. That
relationship has now reversed, with CBO projecting a larger 75-year shortfall.
One reason for the reversal is that CBO has switched from relying on the Social
Security actuaries’ mortality assumptions and have come up with their own. The
question is whether this is an earth-shattering development or another data
point. Both the CBO and the trustees present almost an identical picture of
Social Security relative to the economy. Social Security costs as a percent of
GDP are scheduled to rise from about 5 percent today to 6.2 percent around
2040. Therefore, the new life expectancy numbers do not involve exploding
Social Security costs. But CBO’s new life expectancy numbers do explain a big
portion of the increase in its previous estimate of Social Security’s 75-year
deficit. The Appendix to CBO’s 2013 Long-Term Budget Outlook, and a recent
blog, explain the reasons for the new mortality assumptions. The key metric is
the average annual decline in mortality rates. Social Security assumes that mortality
will decline over the next 75 years at an average pace of 0.8 percent, while
CBO assumes an average annual decline of 1.17 percent. The difference between
the two produces life expectancies in 2060 of 83.6 for Social Security and 84.9
for CBO. The longer the life expectancy, the greater the Social Security costs.

Source/more: Wall Street Journal 

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