Stochastic projections
What is a stochastic model?
A stochastic model is a tool for estimating probability
distributions of potential outcomes by allowing for random variation in
one or more inputs over time. The random variation is usually based on
fluctuations observed in historical data for a selected period using
standard time-series techniques. Distributions of potential outcomes are
derived from a large number of simulations (stochastic projections)
which reflect the random variation in the input(s).
SSA's stochastic model
In August of 2002, the Social Security Administration's
Office of the Chief Actuary
began development of a stochastic model to to project a probability
distribution for future outcomes of the financial status of the Social
Security Trust Funds. The first version of this model (Version 2002.1) was
completed in February 2003. It was based on the intermediate assumptions and
the methods of the 2002 Trustees Report.
Appendix E of the most
recent Trustees Report presents an overview of the most recent
methodology and results of our stochastic model.
In addition, Actuarial Study #117
provides a more extensive description based on the 2004 version of the
model and its results.
Related Links
Internet sites detailing information about
other stochastic models that project the
financial status of the Social Security Trust Funds
are also available. In addition, a paper prepared by SSA's Office of Policy
compares
results from various stochastic models.