What is the Actuarial Deficit?

by Investing School on June 6, 2012

The actuarial deficit is the difference between what Social Security will need to pay out in the future and the income rate of the Fund right now. If the program has a summarized income rate that is less than the summarized cost rate then the program is said to be in actuarial deficit for that valuation period. It may also be called insolvent.

The calculations for actuarial balance are run for 66 different valuation periods. These start with the upcoming 10 years and grow with each following year reaching a 75 year projection. If the projected costs of Social Security are greater than the future value at any point during those 75 years, that period, where the funds are insufficient, would deem the Fund to be in actuarial deficit.

One of the ways that the government is trying to make up the deficit currently seen in the future of the Social Security Trust is an increase in payroll taxes. At best that is a temporary solution. Since it is expected that there will be a lower level of average real earnings over the next 75 years, it would take a much greater increase in payroll taxes than is currently planned.

Other government based funds, such as the Medicare HI Trust Fund and the Disability Insurance program are also in a position of actuarial deficit. In fact their situation is even more dire than that of Social Security. All of these funds are victims of short range assumptions that have not panned out. It is essential that policies be changed to take into account the effects of long range financial trends if any of the funds are to survive.

Promote or Save This Article

If you like this article, please consider bookmarking or helping us promote it!

Print It | Email This | Del.icio.us | Stumble it! | Reddit |

Related Posts

{ 0 comments… add one now }

Leave a Comment

Previous post:

Next post: