2012/01/30 by Martin Gremm, Gremm, Martin, Mark B. Wise +1 · 1 voice
Business, Management and Accounting · Economics, Econometrics and Finance · Social Sciences · #Economic theories and models #FOS: Economics and business #Financial Literacy, Pension, Retirement Analysis #General Finance (q-fin.GN) #Insurance, Mortality, Demography, Risk Management #q-fin.GN
paper · pdf · doi:10.48550/arxiv.1201.6340
11 pages
arxiv created 2012/01/30 · openalex publication_date 2012/01/30 · arxiv published 2012/01/30 · arxiv updated 2012/01/31 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
Social Security and other public policies can be viewed as a series of cash in and outflows that depend on parameters such as the age distribution of the population and the retirement age. Given forecasts of these parameters, policies can be designed to be financially stable, i.e., to terminate with a zero balance. If reality deviates from the forecasts, policies normally terminate with a surplus or a deficit. We derive constraints on the cash flows of robust policies that terminate with zero balance even in the presence of forecasting errors. Social Security and most similar policies are not robust. We show that non-trivial robust policies exist and provide a recipe for constructing robust extensions of non-robust policies. An example illustrates our results.