Methods for Stochastic Trust Fund Projection∗

Current methods used for stochastic projection of the finances of the combined Old-Age and Survivors Insurance and Disability Insurance (OASDI) trust fund are described and found to have problems. Structural time series models and alternative Monte Carlo procedures are identified as new methods that may be able to solve these problems. The new methods are implemented using the productivity growth rate and total fertility rate as examples. Experience from the two examples provides some preliminary indications about how a switch to the new methods affects implementation effort and substantive results concerning the degree of uncertainty in trust fund finances. ∗The research reported in this paper was supported by Social Security Administration contract J-9-P-7-0047 0440-02-51816. The views expressed in the paper are solely those of the author and do not necessarily represent the views of the Social Security Administration. †Economist, Policy Simulation Group ([email protected]).