A New Approach for a Forecasting Model in the Estimation of Social Security Benefits

Abstract

This paper developed a new way in which Social Security benefits are estimated in response to the reforms to Social Security to retain its financial solvency. The present research carefully presented the current methodology to calculate the Social Security benefits and carefully examined changes to the methodology to estimate Social Security benefits. More specifically, the proposed methodology included functional specifications such as a linear spline, a cubic spline, and a cubic smooth function that would be fitted between the index factor and the cumulative number of years a beneficiary receives the benefits. After a functional relationship was derived, the best fit specification was determined based on the data used to estimate future Social Security benefits.