Why Did the American Academy of Actuaries Remove Important Caveats from its Social Security Reform Menu Tool?

Almost seven years ago, the American Academy of Actuaries added the following language to its Social Security Game to avoid misleading the public regarding changes that may be required to bring the system back into actuarial balance:

“The following should be noted when interpreting results from the Social Security Game:

• The 75-year actuarial balance calculation used in the game does not consider significant revenue shortfalls expected to occur after the end of the 75-year projection period, and thus possible solutions illustrated in this game are generally not sufficient to achieve “sustainable solvency,” a concept discussed in the Trustees Report.
• The possible solutions assume immediate adoption of System changes, rather than gradual implementation. If changes to the System are gradually implemented, the required increases in tax revenue or benefit decreases will need to be larger than noted in the game to achieve actuarial balance.
• The success of reforms will depend on how well actual future experience compares with the assumptions made by the trustees and the Social Security actuaries. There is no mechanism in current Social Security law to maintain the program’s actuarial balance once it has been achieved. Thus, there can be no guarantee that the System’s long-term problem will be “solved” for any specific length of time by enacting various system changes. “

Critical Planning Lesson Learned from Social Security

This post is a follow-up to my post of June 11, 2023, where I outlined the general actuarial process that we recommend for ongoing planning in retirement and my Advisor Perspectives article of July 3, 2023, where I illustrated how this same process is applied to Social Security. Several readers questioned why I illustrated the application of the general actuarial process using Social Security since, according to them, it clearly hasn’t worked very well for our primary U.S. retirement system. In this post, I will respectfully disagree with those readers and point out that not only is this proven actuarial process exceptionally robust, but it has actually worked quite well for Social Security and other financial systems. Notwithstanding, there is, an important lesson involving Steps 4 and 5 of the process that we can learn from Social Security when planning our own retirements. 

Life Expectancy vs. Lifetime Planning Period

The inspiration for this post was a recent conversation I had with my buddies at our weekly R.O.M.E.O (Rossmoor Old Men Eating Out) lunch and gab session. The exciting topics we discussed included:

• How much longer can we expect to live?
• How much longer should we plan on living? and
• What is the likelihood that the President of the United States will die in office during the term starting January 20, 2025 given the two likely candidates at this time.

American Academy of Actuaries Doubles Down on Misleading Answer to Cause of Social Security Funding Deterioration

In my Letter to the Editor in the May/June edition of Contingencies (a publication of the American Academy of Actuaries), I took the Academy’s Senior Pension Fellow, Linda Stone, to task for claiming that Social Security’s financial challenges were primarily the result of demographics. I disagreed with Ms. Stone’ claim in my letter and noted that a breakdown of the sources of Social Security’s funding status deterioration since 1983 is shown in Table 1 of Social Security Administration Actuarial Note (Year).8. In the letter, I said,

“This table shows that out of the total 2022 long-range actuarial balance of -3.43% of taxable payroll, 0.14, or -4%, was attributable to “Demographic Data and Assumptions.” Therefore, I conclude that the demographic assumptions used in the 1983 Trustees Report were pretty darned good, and demographics doesn’t appear to be the primary source of the growth in the system’s long-range actuarial deficit since 1983.”