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Posted 2005-08-18 06:16:09 UTC
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## The Cost of Opt-Out, part 1What would happen to Social Security's finances if people were allowed to opt out and a bunch of people did so? The short answer is that this is a very difficult question. I was browsing through the 2005 Social Security Trustees Report looking for useful data and realized that I don't feel motivated to figure out the best reasonable number given the revenue, cost, and demographic trends available in the Report. I'd rather be a lot more lazy and put together something relatively simple but still useful. Our goal is to figure out roughly how long the trust fund will last under the condition of people opting out. Let's assume the AARP's number that 22% of current workers would opt out immediately. I'll need to invent an age distribution for that 22% — so I'll first need to find out the current age distribution in the United States and guess which 22% it will be. Then I'll need to use Table IV.B2 for figures on the numbers of workers and retirees in each year, and Table V.A1 for the death rates of retirees. From those I'll be able to estimate the age distribution of the population over time. I'll also need to guess what percentage of new workers will opt out (it'll be higher than 22%). Hmmm, what else do I need? I need to know how incomes vary with age so I can estimate the contributions that will be paid. I'll need to figure out what interest rate to pay the trust fund bonds at. I'll need to figure out what the average retirement benefit is and how it will change over time. This is awfully complicated. And I'm already tired. I'm clearly not going to get anything numerical done tonight. :( Maybe I'll come back to this with a more resolute attitude about simplification. Right now, all I can think of are the myriad ways my calculations would be full of errors. This is what you get for asking a validator to estimate something. I can tell you a whole lot about how the estimate will be a bad one before I even try to create an estimate. :)
© 2005 Kyle Markley
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