To make sound decisions about potential changes to Social Security, Medicare, and other retirement programs, policymakers need reliable, objective predictions based on the best available data on how reforms would likely affect retiree income and benefits, labor market activities, taxpayer burdens, and program costs and solvency. The predictions are often provided by DYNASIM, the Urban Institute’s well-respected microsimulation model. This grant funds a project by the Urban Institute to expand and improve the DYNASIM model.
DYNASIM is a more ambitious tool than nearly every policy evaluation model in use today. It attempts to predict a wider range of outcomes than do most models developed by CBO or the analytical offices of Cabinet agencies. For example, a raise in the early and full retirement ages would almost certainly affect retirement ages, earnings, savings patterns, and the distribution of incomes of those 60 to 74 years in age. It may also influence marriage rates and living arrangements, and could indirectly affect the health status and health insurance coverage of some older Americans. Simple models often focus on just one or two of these outcomes. DYNASIM’s predictions, however, attempt to capture all these indirect effects.
With this grant, the Urban Institute will develop further the predictive capabilities of DYNASIM so that the model can be used to produce credible and detailed predictions of the impact of government policy reforms that affect the nation’s elderly. The programs of interest include Social Security, including its Disability Insurance (SSDI), Medicare, tax policies that affect retirement saving, and important components of Medicaid. The grant will examine how reforms in one or more of these programs will affect old-age labor supply, the prevalence of old-age poverty, the distribution of income in old age, out-of-pocket spending on health care in old age, and tax burdens of the elderly. The DYNASIM model will also produce predictions of the effects of these policy changes on both the elderly and the nonelderly.
In addition to providing for the needed improvements, the grant includes funds to maintain DYNASIM during the project period, such as by incorporating the latest economic and demographic assumptions used by Social Security and updating tax and other policy parameters. In addition, the Urban Institute team will use some funds to train additional DYNASIM analysts, to ensure the sustainability of the model, and to find ways to provide access to other researchers, so that it can continue to provide the research and policy community with the best information on the effects of retirement policy reforms after the grant period ends.