A panel of experts said yesterday that the Social Security system is underestimating how long Americans are likely to live in coming decades and therefore underestimating how much it will cost to continue to pay them retirement benefits.

In a report to the Social Security Advisory Board, the panel said that mortality rates are likely to continue to decline in the years ahead as fast as they have during this century, rather than falling more slowly as Social Security has assumed. Changing this key assumption would increase the huge retirement system's deficit over the next 75 years to 2.58 percent of taxable payroll from the 2.07 percent shortfall the system's trustees estimated last spring, the panel estimated.

The trustees will consider the group's recommendations as it prepares its next annual report on the health of system, due in April.

Political leaders of both parties have offered Social Security reform proposals that include the investment of a portion of the system's trust funds in stocks, rather than exclusively in government securities, as a way to eliminate that deficit.

In effect, the trustees' figure of 2.07 percent indicates that it would take an immediate increase in the 15.3 percent payroll tax--half of which is paid by employers and half by employees, with the self-employed paying the full rate--to 17.37 percent to keep Social Security solvent over the 75-year period. The panel's assumption that life expectancy will increase by more than three years over that period means that tax rate would have to go to 17.88 percent to eliminate the deficit.

Of course, the shortfall could be trimmed or wiped out entirely by a combination of other changes the White House and Congress have hesitated to make. They include increasing the retirement age more rapidly than under current law or reducing benefits in some other fashion.

With evidence mounting that labor productivity may be increasing faster than it was during the 1980s and early 1990s, the panel also proposed that Social Security trustees modestly raise their assumption about the rate at which inflation-adjusted wages will go up in the future. That change would reduce the system's long-term deficit by 0.20 percent of taxable payroll.

But the panel also proposed lowering to 2.7 percent from 3 percent the estimated inflation-adjusted interest rate the trust fund will get on the government securities it owns. That would boost the deficit by an identical 0.2 percent.

Stanford G. Ross, chairman of the Social Security Advisory Board, said the most important part of the panel's report was its recommendation for a set of standards by which reform proposals could be evaluated. The point, he said, is to get everyone "speaking to each other in the same language" so that government officials and the public have "an understanding of concepts like risk and reward and uncertainty."

The panel's chairman, Eugene Steuerle, an economist at the Urban Institute, said the group, which included demographers and actuaries as well as economists, took no position on any reform proposal. Indeed, there was no attempt to evaluate them.

Rather, it came up with a detailed checklist of points that backers of any reform plan should address, including detailed information about funding sources, changes in benefits, and the impact on national saving and the overall federal budget, among others.

Reform proposals that involve changes in the way trust fund money is invested should include what fraction would be placed in private securities, what types of securities, who would manage the investments and at what cost.

Above all, Steuerle said that the public must not be misled into believing there is a "free lunch"--that is, that any Social Security shortfall can be made up simply by having the government borrow money, invest it in the stock market and get a higher return than the interest rate it would pay on the borrowed money.

Historically, over long periods of time, the rate of return on stocks has been higher than the return on bonds, Steuerle acknowledged. But that difference, known as the equity premium, is regarded by financial experts as evidence that investors think stocks are a riskier asset than bonds.

"If there is an equity premium, the finance literature says it is associated with risk" and the price investors put on that risk is roughly equal to the premium, he said.