Chapter

Simulating Social Security's Finances

Jagadeesh Gokhale

in Social Security

Published by University of Chicago Press

Published in print April 2010 | ISBN: 9780226300337
Published online February 2013 | e-ISBN: 9780226300368 | DOI: http://dx.doi.org/10.7208/chicago/9780226300368.003.0006
Simulating Social Security's Finances

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Having incorporated and validated all relevant demographic and economic variables, this chapter describes the simulation of Social Security's future finances. This part of Demographic and Economic Micro Simulation (DEMSIM) makes use of a Social Security Tax and Benefit Calculator to calculate payroll taxes, benefit eligibility, and the amount of benefits for each of DEMSIM's simulated individuals in each period beginning in 2006. The calculations include retirement benefits, dependent and surviving spouse and child benefits, divorced spouse benefits, and benefits for young parents with children in care. They also incorporate many details of the Social Security benefit formula, including reductions for early retirement, credits for late retirement, reductions in dependents' and survivors' benefits for early retirement, and earnings tests applicable at specific ages after early retirement. The calculations are validated by comparing them with those from the official Social Security Administration calculator across a wide range of stylized cases—for individuals distinguished by year of birth, lifetime earnings, and ages of retirement and benefit collection. This chapter shows the sensitivity of the results under alternative assumptions about productivity, discount rates, immigration, mortality and fertility rates, future labor force participation and education, and acquisition transitions.

Keywords: economic variables; demographic; social security; calculations; validations

Chapter.  8661 words.  Illustrated.

Subjects: Public Economics

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