Demographic Certainties and Uncertainties in the Future of Social Security

This testimony describes demographic changes that will affect Social Security financing over the long term: the aging of the population (that is, the rise in the fraction of elderly people) from now into the next century; the shift of wives into paid work outside the home; lengthening of life expectancy; changes in the average retirement age; and uncertainties about future immigration. The following conclusions are drawn: (1) we can foresee a sharp increase in the over-65 population, likely continuation of the shift of wives into the workforce, and a lengthening of life expectancy; (2) the long-term demographic outlook, however, is uncertain in important respects; (3) as long as Social Security payments are financed by intergenerational transfers instead of by the contributions of the recipients themselves, the system will be vulnerable to demographic shifts that legislation cannot fully anticipate; and (4) the element of demographic surprise can be reduced by continually reappraising the assumptions underlying projections of the numbers of donors and recipients.