Wednesday, April 02, 2008

The Shape of Low Cost

This figure shows in graphic form the outcomes of Intermediate Cost (II) vs High Cost (III) vs Low Cost (I)

Outcome II shows the standard narrative. A Trust Fund Ratio rising to a peak in 2017  then a more or less rapid falloff to zero as the first the interest is tapped and then the principal is redeemed with the result of total Trust Fund Depletion in 2041.

Outcome III or High Cost shows the same process only accelerated.

But Outcome I or Low Cost shows a much different picture. The Trust Fund ratio peaks at about 450 about 2020 then dips to 390 by around 2040 as a portion of the interest is tapped but after a period of plateau sharply increases through the remainder of the 75 year actuarial window. This is quite literally the picture of a potentially overfunded Social Security system. Is a Low Cost outcome guaranteed? Well no. Is it possible? Certainly the numbers are not at all outlandish and perfectly in line with economic performance over the last fifteen years.

Can we at least talk about the implications of this?

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