Social Security Module

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Penn Wharton Budget Model’s Social Security Module (PWBM-SS) uses a highly detailed simulation and projection of U.S. demographics from the Penn Wharton Budget Model Microsimulation model (PWBMsim).

As shown below, PWBM’s integrated Social Security module accounts for the benefits rules associated with retirees, child and adult (spousal) dependents, widowers, divorced spouses, and disabled beneficiaries. Calculations of initial benefits at claiming are validated against a benefits calculator provided by the actuaries at the Social Security Administration using thousands of different individual and household scenarios, and all benefits are verified to be accurate within one penny. Subsequent benefits are increased by a cost of living adjustment based on PWBM projections of CPI-W inflation. The module estimates the number and composition of workers and their earnings. Payroll taxes are estimated using PWBM’s integrated Tax Module (PWBM- TM), which also allows for income shifting and reclassification of income in response to policy changes. The integrated model is further validated using an extensive battery of tests on U.S. historical data, including backtests of demographic, economic and various budget (e.g., Social Security) variables.

We then use PWBM’s integrated dynamic OLG model estimates the impact of households responding to policy reforms by changing, for example, their decisions to work and save. The Dynamic OLG model includes numerous types of forward-looking households with distributions of income, Social Security rules, as well as key demographic attributes calibrated from the microsimulation model. Households in the Dynamic OLG model and face uncertainty today and in the future about their income and longevity. The OLG model allows for unbalanced policy reforms that increase or decrease government debt. It therefore allows estimation of how future taxable payrolls, benefit eligibility, earnings histories and benefit levels are impacted by growing debt.