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This paper consists of three reports on stochastic forecasting for Social Security, on infinite horizons, immigration, and structural time series models. 1) In our preferred stochastic immigration forecast, total net immigration drops from current levels down to about one million by 2020, then slowly rises to 1.2 million at the end of the century,...
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The standard measure of the 75-year Social Security imbalance is 1.87 percent of payroll, but raising taxes this much would not make finances sustainable. We consider exact and approximate infinite horizon measures based on different strategies for extending the projections past 75 years. These indicate imbalances of 3.1 to 5.7 percent of payroll....
Social Security projects that life expectancy at birth in 2080 will be 83.5 (average of male and female in 2002 TR). Using a trend extrapolation method that has been widely accepted by demographers (Lee-Carter), and has been used by US Census, I project it will be 85.3, or 1.8 years higher. Put differently, Social Security projects that life expect...
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... Un método que puede solucionar la falta de datos es estimar la migración neta como la diferencia entre el incremento del tamaño de la población y el crecimiento natural utilizando la ecuación compensadora, también llamada ecuación de crecimiento. Más aún, para pronósticos de población subnacionales que involucran efectos de la migración interna, este método es el único disponible ya que es frecuente que no se registren datos sobre migración a ese nivel de desagregación, ver Miller (2003) ;Miller y Lee (2004). Además, el uso de la migración neta no contempla un aspecto importante: la bondad de pronóstico depende de la desagregación de acuerdo con diferentes grupos o tipos de inmigrantes y emigrantes (Hilderink et. ...
In this study, models for functional data (MDF) are applied to the mortality and fertility data from Argentina to obtain their corresponding probabilistic forecasts and, from them, population projections. This exercise is interesting given the difficulties presented in the 2020 census round, as it could provide provisional figures pending its final completion. The application of these models to data from Argentina based on data from the period 1980-2010, the year of the last available census, shows that when there is information for not very long periods of time and an acceptable quality of the data sources, can be used successfully to make probabilistic forecasts. Second, the alternative consistent forecasting methodology is applied to mortality data in order to avoid a divergence between the two genders. Finally, from the fertility forecasts (based on two fertility hypotheses) and mortality (independent and coherent), stochastic forecasts of the population for men and women are elaborated. In all the cases evaluated, the estimated quantities are above the official ones. The results here are consistent with demographic theory and mainly correspond to probabilistic consistency.
... Un método que puede solucionar la falta de datos es estimar la migración neta como la diferencia entre el incremento del tamaño de la población y el crecimiento natural utilizando la ecuación compensadora, también llamada ecuación de crecimiento. Más aún, para pronósticos de población subnacionales que involucran efectos de la migración interna, este método es el único disponible ya que es frecuente que no se registren datos sobre migración a ese nivel de desagregación (ver Miller (2003); Miller y Lee (2004)). Además, el uso de la migración neta no contempla un aspecto importante: la bondad de pronóstico depende de la desagregación de acuerdo a diferentes grupos o tipos de inmigrantes y emigrantes (Hilderink et. ...
... Un método que puede solucionar la falta de datos es estimar la migración neta como la diferencia entre el incremento del tamaño de la población y el crecimiento natural utilizando la ecuación compensadora, también llamada ecuación de crecimiento. Más aún, para pronósticos de población subnacionales que involucran efectos de la migración interna, este método es elúnico disponible ya que es frecuente que no se registren datos sobre migración a ese nivel de desagregación, ver Miller (2003); Miller y Lee (2004). Además, el uso de la migración neta no contempla un aspecto importante: la bondad de pronóstico depende de la desagregación de acuerdo a diferentes grupos o tipos de inmigrantes y emigrantes (Hilderink et. ...
... Therefore, the sustainability of basic pension systems is becoming a hotly discussed issue across the world. There have been many studies that are in attempts to quantify the contributions and expenditures of the pension systems that result from populations aging [11][12][13][14]. These studies mainly introduced two approaches to forecasting the financial sustainability of a basic pension system: the deterministic forecasting method and the stochastic forecasting method. ...
... Ultimately, the stochastic forecasts of the basic pension are only as good as those of the key input series. As the key inputs for the prediction, time series modeling techniques are adopted to estimate the mortality rate and the fertility rate [32][33][34][35], which will be sufficient not only to identify the long-term level or trend in the input series for forecasting purposes, but also to identify the variances of them [13]. ...
The paper focuses on the stochastic forecast of the financial sustainability of basic pension, based on predictions for the population of China. The population was calculated iteratively by using Leslie matrix. An auto-regressive moving average model was adapted for the predictions of the fertility rates and the mortality rates. The Monte Carlo stochastic method was adapted for the projections of the dynamic process of the financial sustainability of the basic pension from 2013 to 2087 by 5000 times simulation. The forecasting results show that the imbalance of basic pension will occur in 2026. If the statutory retirement age is postponed by five years, the occurrence of the financial gap of the basic pension may be delayedby about 20 years, and the median deficit of basic pension will be reduced by about 64.25% in 2087.
... taken as deterministically given by the intermediate assumption in the Social Security Trustees Report of 2004 (see Lee et al., 2004 for treatment of immigration as stochastic in this framework). The fertility and mortality processes are fit to historical US data. ...
Using stochastic simulations we analyze how public pension structures spread the risks arising from demographic and economic shocks across generations. We consider several actual and hypothetical sustainable PAYGO pension structures, including: (1) versions of the US Social Security system with annual adjustments of taxes or benefits to maintain fiscal balance; (2) Sweden's Notional Defined Contribution system and several variants developed to improve fiscal stability; and (3) the German system, which also includes annual adjustments to maintain fiscal balance. For each system, we present descriptive measures of uncertainty in representative outcomes for a typical generation and across generations. We then estimate expected utility for generations based on simplifying assumptions and incorporate these expected utility calculations in an overall social welfare measure. Using a horizontal equity index, we also compare the different systems' performance in terms of how neighboring generations are treated.While the actual Swedish system smoothes stochastic fluctuations more than any other and produces the highest degree of horizontal equity, it does so by accumulating a buffer stock of assets that alleviates the need for frequent adjustments. In terms of social welfare, this accumulation of assets leads to a lower average rate of return that more than offsets the benefits of risk reduction, leaving systems with more frequent adjustments that spread risks broadly among generations as those most preferred.
... In the Center's first year, Lee, Miller, and Anderson (2005) developed methods that quantify the uncertainty in long-term projections of Social Security finances. The study involved extensive and detailed modeling of the many uncertain variables that will influence Social Security finances in the future, such as birth rates, death rates, and the growth of wages and the economy. ...
Since September 2003, the Retirement Research Center at the National Bureau of Economic Research has conducted a coordinated series of investigations on Social Security in a changing environment and the potential routes to sustainable solvency. The Center supports extensive collaborative research over a multiyear horizon to achieve a more fully integrated understanding of Social Security's challenges and the changing environment in which it operates. This article is an overview of the studies completed since the Center's inception.
... A first possibility is to obtain the confidence intervals based on stochastic simulation of the different variables which affect the baseline. This approach has been followed, among others, by Ahn, Alonso-Meseguer and García (2005), Lee, Miller and Anderson (2004), the US Social Security Trustees and the CBO. To obtain probabilistic intervals, it is necessary to make some statistical assumptions concerning the rates of growth of population, productivity and many other variables used in the projection, and obtaining the confidence interval around the baseline scenario using, for example, bootstrapping methods. ...
In this paper we suggest a set of indicators about the future performance of the Spanish public pension system and a suitable method of representing their uncertainty, in order to improve the communication to the public opinion about its main future challenges. Spain seems a particularly interesting case in Europe to illustrate our proposals, since the social security system has been in surplus for nine consecutive years, in sharp contrast to the projections made just a decade ago, but, at the same time, most projections foresee for Spain one of the highest increases in public expenditure among EU countries due to aging. We argue that simple, transparent, credible, public and periodic indicators, which take explicitly into account the uncertainty about future demographic, economic and institutional developments, may contribute to improve the debate on the policies needed to strengthen the pension system.
... Stochastic population forecasts have generally included only deterministic forecasts of net migration. Recently, Miller and Lee (2005) proposed a stochastic forecast for net migrants to the U.S. based on a time-series analysis of US immigration. Here, I propose to use the historical data for net migration to UN member countries whose population exceed 2.5 million in 1950. ...
Chapter I presents the Random Country Model population forecast based on the collective historical experience of UN member countries.
The model can be easily replicated in all countries. In addition, it could be used for probabilistic forecasts for Latin America and other regions of the world or the world as a whole. It serves as a useful complement to the official UN scenario forecasts.
Like other stochastic models, it attempts to quantify our uncertainty about the future using variation observed in the past.
Unlike most other stochastic and deterministic models, it stresses the common demographic experience of countries – rather than the uniqueness of countries.
Other types of projection models (e.g. budget forecasts) can use these Random Country Model probabilistic population forecasts as model inputs in order to measure the impact of our uncertainty about the future population.
Comparison of UN scenario forecasts with the probabilistic forecasts based on the Random Country Model showed that the UN scenario forecasts are considerably more pessimistic about future longevity gains than past experience would indicate. In addition, there is considerable variability in immigration rates which are not reflected in UN scenario forecasts. Therefore, the two biggest surprises that countries will likely face are (1) a larger than expected elderly population and (2) shifts in immigration levels.
En este artículo se presenta el modelo de Lee-Carter y el Modelo de Datos Funcionales (dos modelos probabilísticos, ambos provenientes de la Estadística) y con cada uno se elabora la proyección de la mortalidad y las esperanzas de vida al nacimiento en tres Departamentos de la Provincia de Córdoba para el período 2020-2040. Además, se analizan las fortalezas y debilidades de ambos métodos. Para ello se utilizan datos provenientes de Estadísticas Vitales y Censos Nacionales de Población de Argentina. Asimismo, se aborda la relación entre las metodologías estadísticas y la Demografía. ABSTRACT
This paper is focused on Lee-Carter Model and Functional Data Model, both of which were developed in the field of Statistics. These models are applied in order to carry out the projection of mortality and life expectancies at birth on three departments of the province of Córdoba (Argen-tina) from 2020 to 2040. The strengths and weakness of said models are also analyzed. In order to do that, data from Vital Statistics and National Census in Argentina were used. Moreover, there is reference to the relationship between Demography and Statistics as well.
Even over a 75-year horizon, forecasts of PAYGO pension finances are misleadingly optimistic. Infinite horizon forecasts are necessary, but are they possible? We build on earlier stochastic forecasts of the US Social Security trust fund which model key demographic and economic variables as historical time series, and use the fitted models to generate Monte Carlo simulations of future fund performance. Using a 500-year stochastic projection, effectively infinite with discounting, we find a fund balance of -5.15 per cent of payroll, compared to the -3.5 per cent of the 2004 Trustees' Report, probably reflecting different mortality projections. Our 95 per cent probability bounds are -10.5 and -1.3 per cent. Such forecasts, which reflect only ‘routine’ uncertainty, have many problems but nonetheless seem worthwhile.
