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Stochastic Rates of Return for Social Security Under Various Policy Scenarios

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Author Info

  • Michael Anderson

    (Mountain View Research)

  • Hisashi Yamagata

    (Department of Dermography, UC Berkeley)

  • Shripad Tuljapurkar

    (Standford University)

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    Abstract

    In this paper, we compute distributions of rates of return by cohort for the Social Security retirement system, using a combination of historical data and stochastic forecasts of productivity and mortality rates. Since our forecasts of productivity and mortality are stochastic, the rate-ofreturn estimates themselves are stochastic; that is, we compute an entire distribution of rates for each cohort. We repeat these calculations under a variety of policy scenarios designed to bring the trust fund into future solvency with roughly 50% probability. This allows us to examine the impact of various schemes on different cohorts. Policies which delay reform the longest and impact taxpayers the greatest dramatically concentrate the impact of reform on the youngest cohorts. Reforms which are more immediate and focused on retirees tend to spread the cost of reform across generations more evenly. Authors’ Acknowledgements This research was funded by a grant from the Michigan Retirement Research Center, which is in turn supported by the Social Security Administration. Some closely related research was also supported by the Center for the Economics and Demography of Aging at U.C. Berkeley, which is supported by the National Institutes of Health.

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    File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp010.pdf
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    Bibliographic Info

    Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp010.

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    Length: 18 pages
    Date of creation: May 2001
    Date of revision:
    Handle: RePEc:mrr:papers:wp010

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    1. Edward N. WOLFF, 1988. "Social Security, Pensions and the Life Cycle Accumulation of Wealth: Some Empirical Tests," Annales d'Economie et de Statistique, ENSAE, issue 9, pages 199-226.
    2. Ronald D. Lee & Michael W. Anderson & Shripad Tuljapurkar, 2003. "Stochastic Forecasts of the Social Security Trust Fund," Working Papers wp043, University of Michigan, Michigan Retirement Research Center.
    3. Burkhauser, Richard V & Warlick, Jennifer L, 1981. "Disentangling the Annuity from the Redistributive Aspects of Social Security in the United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 27(4), pages 401-21, December.
    4. Michael J. Boskin & Laurence J. Kotlikoff & Douglas J. Puffert & John B. Shoven, 1987. "Social Security: A Financial Appraisal Across and Within Generations," NBER Working Papers 1891, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Luís Eduardo Afonso & Reynaldo Fernandes, 2003. "Uma Estimativa dos Aspectos Distributivos da Previdência Social no Brasil," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31th Brazilian Economics Meeting] f15, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

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