Social Security Assumptions Are Not Sustainable

There was an article in the Wall Street Journal the other day about the IMF, warning anyone who will listen that models for life expectancy currently being used by pensions and government entitlement programs underestimate how long people will live. The conclusion was that this adds about $7 trillion to what most studies believe to be the totality of the social security and medicare future shortfalls.

Over the years the articles I've read about life expectancy seem to believe that expectancies will increase at an accelerating rate due to medical innovation. When I've mentioned this in the past there have been comments about not wanting to last for years in a frail state needing to be cared for down to the most personal of daily tasks. That is not the context of the work being done in the field.

Obviously it will be a couple of decades or longer before we know whether or not this holds water and, if it does, how much water it holds. But we do know that people generally are living longer and that there will continue to be medical advancement, and we will learn more about nutrition and other lifestyle habits that offer the plausible outcome of living well for a longer period of time.

Perhaps with a bit of confirmation bias I believe this supports the idea of social security and medicare looking much different in a number of years (10? 20?). For many years I have been saying that the programs as we know them are not sustainable. I think that whenever things finally hit the fan we will look back and unsustainability will have been obvious, like the way we look back on the tech wreck and the financial crisis (hindsight bias).

Not being an actuary or demographer I certainly have no idea how far down the net worth/income scale benefit cuts will come, but a lot of people relying on social security will have a serious and unfortunate situation befall them -- which, of course, is not only a micro problem but also a big macro problem.
I tend to believe that plenty of people will figure out ways to get by without being homeless even if it is difficult, involving a lot of sacrifice and taking some sort of job that they view as undesirable. There will still be a lot of problems on the personal economic front, but individual problem solving is worth something.

Individual problem solving is what living below your means is all about. Spending less allows for saving more, which hopefully results in less reliance on a social program that may not be there for you. This does not mean living like a monk in a cardboard box, but presumably as you get a little further along in your profession and start to make a little more money you could increase your personal savings rate.

Also, if the scenario of making more plays out for you for a while but then derails, then you obviously have an easier time covering your monthly expenses either through savings or getting a job at Home Depot or the like. You can cover a decent portion of a $2,000-$3,000 monthly nut compared to $8,000 in expenses with a $10/hour job until your career gets back on track -- and I speak from experience here.