Will Aging Baby Boomers Bust the Federal Budget

The authors analyze in three steps the influence of the projected mortality decline on the long-run finances of the Social Security System. First, mortality decline adds person years of life which are distributed across the life cycle. The interaction of this distribution with the age distribution of taxes minus benefits determines the steady state financial consequences of mortality decline. Second, examination of past mortality trends in the United State and of international trends in low mortality populations, suggests that mortality will decline much faster than foreseen by the SSA's forecasts. Third, based on work on stochastic demographic forecasting, stochastic forecasts of the system's actuarial balance are derived, indicating a broader range of demographic uncertainty than in the latest SSA forecasts, and a relatively greater contribution to uncertainty from fertility than mortality.