The Social Security Trusteess Methodology for Doing Mortality Projections

Among the more important projections underlying the 75-year cash flow projections done by the Social Security Trustees each year are projections for mortality rates by age and gender. The Trustees mortality projection is controversial. All of the last six Social Security Technical Panels on Assumptions and Methods (TPAM) have recommended substantially faster morality improvement than is projected by the Trustees. And five of the last six panels, all but the most recent 2015 TPAM, have recommended that the Trustees adopt a simpler, more transparent, and more conventional projection methodology, an “all-cause projection methodology” where all-cause mortality rates are projected directly rather than a “by-cause projection methodology” where mortality rates for individual causes are projected and then added up to get projected all-cause mortality rates. The focus of this paper is to critique the Trustees’ mortality projection methodology. I begin by detailing the methodology based on information in the official documentation and in conversations I’ve had with staff at Social Security’s office of the chief actuary (OCACT). I conclude that methodology is not a pure by-cause methodology. Specifically, I present evidence that the average rates of all-cause mortality improvement over that last 50 years of the projection are determined using an all-cause projection methodology, and that the Trustees’ by-cause mortality improvement assumptions are merely a mechanical means of specifying a time path for all-cause mortality improvement that decelerates over time. The paper also evaluates a true “by-cause” projection methodology where only by-cause mortality data (and not all-cause mortality data) is consulted when specifying future by-cause rates of mortality improvement. I conclude that breaking the all-cause mortality projection down into parts in this manner cannot be helpful because the correlations between the causes are not understood. And even if the correlations were known to be zero, I find that the short 34-year by-cause mortality improvement history cannot be helpful for formulating projections because extrapolating the 1979-2013 rates of by-cause mortality improvement would soon result in negative rates of all-cause mortality improvement. I also demonstrate that the 2015 TPAM recommendation that the Trustees assume faster rates of mortality improvement is not compatible with its recommendation that the by-cause projection methodology be retained. This incompatibility is due to the fact that the by-cause projection methodology forces the Trustees to project all-cause mortality improvement that decelerates over time, while the reasoning underlying the technical panels’ recommendations for faster mortality improvement is that mortality improvement should be projected to continue at about the same pace as experienced in the recent past. For completeness, an appendix to the paper critiques OCACT’s arguments for assuming the all-cause mortality improvement will decelerate. I find the arguments to be overstated or outright wrong. But this is not the paper’s focus. It would be possible for the Trustees to devise a purely all-cause projection methodology that results in a decelerating time path for all-cause mortality. So the question of whether to retain the by-cause projection methodology and the question of whether to continue projecting decelerating mortality improvement are separate questions. Regardless of whether the Trustees wish to project all-cause mortality improvement that is decelerating or is not decelerating, the projection would be most transparent and simple, and probably most accurate, if it were done in the context of a purely all-cause mortality projection methodology.