Monday, October 5, 2015

CBO projects lower interest rates for Social Security Trust Fund bonds

The Congressional Budget Office has posted a presentation on their projections for long-term interest rates, which play an important part in Social Security trust fund and solvency measures (though no real part in annual payroll tax and benefit outlay measures). The presentation was made to the Social Security Trustees Working Group, which  meets throughout the year to consider issues as the Trustees work to construct the following year's annual report.

The punchline to this presentation can be found on page 10: the CBO projects that from 2015-2040, interest rates on trust fund bonds will average 4.5%, versus the 5.3% projected by Social Security's Trustees. From 2040 onward, CBO projects an average bond yield of 4.7%, versus 5.6% from the Trustees. This difference would explain part of why CBO projects a substantially larger long-term Social Security shortfall than do the Social Security Trustees, though other factors weigh larger in that outcome.

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