Inefficiency in social security trust funds forecasts

ABSTRACT

We examine forecast accuracy and efficiency of the Social Security Administration’s projections for cost rate, trust fund balance, trust fund ratio made during 1980–2020 with horizons up to 95 years. We find that the deterioration in the accuracy of the forecasts during 2010’s has reversed in recent years. The level of informational inefficiency has been pervasive during 1990–2009, although it shows signs of improvement after 2010.

KEYWORDS:

• Social security trust funds
• long-range solvency forecasts
• nordhaus test
• forecast efficiency
• fixed-event forecast revisions

JEL CLASSIFICATION:

• C53
• E37
• E66
• H55
• H68

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

The data used in the study can be obtained from https://www.ssa.gov/oact/tr/. However, we will be happy to provide the data in Excel upon request.

Notes

¹ In earlier years, forecasts were reported for every fifth year beyond the tenth. Since 2001, forecasts for every year are reported in the Supplemental Single-Year Tables, from which we collect our data. The actual values are subject to revisions, so are the forecasts. Wherever we use the actuals, we use the first vintage, i.e. the initial release. The longest forecast horizon changes from year to year. For example, in the reports from 2007 to 2011, forecasts were reported up to 2085. In 2012 to 2016, forecasts were reported until 2090, and subsequently 2095.

² These plots are directly comparable to their Figures 5 to 7. The smoothed lines do not match exactly due to the expanded sample used for estimation.

³ The Nordhaus test has been used successfully in many contexts, but it’s appropriateness in testing the efficiency of very long-range forecasts whose outturns are unavailable for many years to come is less appreciated.

⁴ We also examined cluster (by target year or horizon) standard errors and they displayed the same patterns of statistical significance.

⁵ Note that unpredictable forecast revisions imply that fixed-target forecasts should look like a random walk – revisions should be spiky and not smooth, cf. Nordhaus (1987).

⁶ The negative spike of 2020 for all target years 2030 and beyond are surely related to the COVID-19 pandemic and the sharp recession that followed.

⁷ Clements (1997) and Lahiri and Sheng (2007) have analysed these possibilities.

Additional information

Funding

This research did not receive funding.