NASI Fumbles Facts Regarding Primary Cause of Social Security’s Funded Status Deterioration

This month, the National Academy of Social Insurance (NASI) released “Social Security at 90: Policy Options for Strengthening the Program’s Finances and Avoiding Automatic Benefit Cuts.” In their report, NASI examines “lessons from Social Security’s history that can help inform a potential path forward.” With respect to the causes of system’s current long-term financing problem, the report concludes:

“Much of the program’s long-term shortfall stems from the legacy costs of paying benefits to early generations of recipients after the program’s inception. More recently, the further deterioration in Social Security’s financial outlook since 1983 is largely due to the rise in earnings inequality that has eroded the program’s tax base, along with a failure to adjust tax rates in recent decades.”

In this post, we will disagree with NASI’s conclusions with respect to the primary cause(s) of the system’s long-range funded status deterioration and several other suggestions they make. This is a subject that we have written about extensively in the past, and one which we feel compelled respond to by “substituting facts for appearances” (part of the actuarial profession’s motto).

Long-Range Social Security Financing—It’s Worse Than We Predicted

In our post of February 15, 2025, we estimated Social Security’s financial status as of January 1, 2025 using:

• results from the 2024 OASDI Trustees report,
• an estimate from the Congressional Budget Office (CBO) of the effect of passage of the Social Security Fairness Act,
• our estimate of the effect of the annual actuarial loss to the system resulting from the change in the 75-year projection period, and
• no other changes in assumptions, system provisions or methods

Last February, we estimated that Social Security’s long-range actuarial balance as of January 1, 2025 would be -3.65% of present value of taxable payrolls for the next 75 years (down from -3.50% last year), or a Funded Status (PV of Assets/PV of Liabilities for the next 75 years) of 79.1% (down from 79.8% last year).  Our estimates turned out to be optimistic.

Kitces.com Suggests Advisors Include an Actuarial Approach in their Consulting Toolbelt

In its Weekend Reading for Financial Planners (June 7-8), Kitces.com and Adam Van Deusen included a link to and summary of our April 28, 2025 Advisor Perspectives article, “Advising a Retired Client Who Wants to Buy a Second Home (or Other Big-Ticket Item)”. Mr. Van Deusen did an excellent job summarizing the article and pointing out the benefits of using the Actuarial Approach and its Funding Status metric to measure and communicate the impact of a client’s financial decisions on the sustainability of their plan.

In his summary, Mr. Van Deusen says,

“In sum, financial advisors have more than one tool in their toolbelt when it comes to analyzing the impact of large purchases by their retired clients. And while advisors might not consider themselves to be actuaries, taking an actuarial approach could provide clients with a metric that allows clients to better understand the impact of potential purchases on the sustainability of their financial plan!”

Of course, we like to think that the Actuarial Approach advocated in this website and its Funded Status metric can easily be applied more broadly to all significant financial decisions in retirement, not just potential purchases. We strongly agree with Mr. Van Deusen that the Actuarial Approach would be a good tool to add to the toolbelt of a financial advisor, and we are happy to assist financial advisors who may have questions about the Actuarial Financial Planner Excel workbooks or the Actuarial Approach discussed in our website.

Funded Status—The Better Metric for Managing Assets and Spending in Retirement

As we have indicated many times in prior posts, the future isn’t going to happen as you (or your financial advisor) assume, and your spending goals and actual spending are likely to change over time. Therefore, your retirement plan should include a process for determining when future adjustments to your plan may be necessary. We believe such a process is much more important than any model you may use to project the future.