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Stochastic Rates of Return for Social Security Under Various Policy Scenarios

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Listed:
  • Michael Anderson

    (Mountain View Research)

  • Hisashi Yamagata

    (Department of Dermography, UC Berkeley)

  • Shripad Tuljapurkar

    (Standford University)

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.

Suggested Citation

  • Michael Anderson & Hisashi Yamagata & Shripad Tuljapurkar, 2001. "Stochastic Rates of Return for Social Security Under Various Policy Scenarios," Working Papers wp010, University of Michigan, Michigan Retirement Research Center.
  • Handle: RePEc:mrr:papers:wp010
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    File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp010.pdf
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    References listed on IDEAS

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    1. 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 401-421, December.
    2. Edward N. Wolff, 1988. "Social Security, Pensions and the Life Cycle Accumulation of Wealth: Some Empirical Tests," Annals of Economics and Statistics, GENES, issue 9, pages 199-226.
    3. 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.
    4. repec:adr:anecst:y:1988:i:9:p:10 is not listed on IDEAS
    5. Boskin, Michael J. & Kotlikoff, Lawrence J. & Puffert, Douglas J. & Shoven, John B., 1986. "Social Security: A Financial Appraisal Across and Within Generations," CEPR Publications 244432, Stanford University, Center for Economic Policy Research.
    6. repec:adr:anecst:y:1988:i:9 is not listed on IDEAS
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    Cited by:

    1. Afonso, Luís Eduardo & Fernandes, Reynaldo, 2005. "Uma Estimativa dos Aspectos Distributivos da Previdência Social no Brasil," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 59(3), July.

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