Stop Sweating Social Security -- the End Is Not Near

Robert Gordon, a respected economist at Northwestern University, recently took a fresh look at long-term economic trends. His conclusion? The trustees are continuing to be far more pessimistic than the evidence warrants. His projections, based on recent increases in national productivity as well as more reasonable estimates of immigration, show an economic growth rate for the next two decades that's nearly a percentage point per year higher than the trustees' projections.

If you plug Gordon's more realistic numbers into the model that the trustees use to project the health of Social Security, it turns out that the program is solvent for the rest of the century. In other words, Social Security needs no changes at all. Everyone alive today, young and old, will be covered in full when they retire. Surprised?

But if that's the case, what accounts for the persistent and widespread Social Security doom-mongering? In the case of the Social Security trustees, the answer is easy: Their projections are made by professional actuaries, and actuaries are conservative by nature.

And politicians? Each has his or her reason. Clinton, for instance, recommended using budget surpluses to "save" Social Security because he wanted to fend off Republican attempts to eliminate the surplus by cutting taxes. President Bush, for his part, has long been a fan of private accounts as a replacement for government guarantees of retirement income -- but the only way to convince the public that it's worth risking their retirement income on the stock market is to claim that Social Security is in crisis and requires radical changes.

It's true that Social Security is going to cost more in the future than it does today. We are living longer and there are more retirees than in the past. But reforms crafted by Alan Greenspan and signed into law by Ronald Reagan in 1983 included a phased series of modest Social Security benefit cuts and modest tax hikes to take care of that. So far, their plan is working flawlessly.

Still, you might be wondering what happens if the gloomy predictions of the Social Security trustees turn out to be right. Here's another thing you probably don't know. Even in the worst case, even if we do absolutely nothing for the next 38 years, Social Security won't go bankrupt.

On the contrary, benefits will continue to be paid forever. They won't be as generous as we'd like, but they'll still be higher than they are today.

For now then, making drastic and risky changes to Social Security is like performing major surgery before you even know the results of a biopsy. A more prudent course is to wait and see -- act only if problems really develop down the road.

In the meantime, I've stopped being a Social Security doom-monger. On the list of things to worry about, it shouldn't even be in the top 10.