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# Kenji L Logie

## Simulating a Worst Case Social Security Model

System of Interest
For the purpose of this simulation a simplified worst case social security model was
created for a developing countrys social security program. The program simulates
how long it would take this new social security program to go bankrupt, if it earns
no interest on its capital, and its only source of paying out benefits is members
monthly contributions and its initial capital of \$750,000.
This model only deals with paying into the social security for the purpose of
retirement benefits. Persons pay into the social security program at one of three
possible earning levels monthly. This would lead to one of three possible payouts of
benefits monthly for persons 60 years or older. Simulating the point of bankruptcy
begins at the third part of the program when the organization has built up capital
over a period of time, which is defined within the simulation as the contribution
only period without paying out any benefits. At the end of the contribution only
period it begins to pay out benefits to anyone in the simulation eligible to receive
benefits which by definition is a members who is 60 years or older.
Events and System Variables
Events: a new person joins the work force, payment of benefits, and receiving
contributions

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Kenji L Logie

## System State variables:

c- Social Security capital,
n- Maximum number of persons in the system at that point in time
t- Time
Discrete Event Simulation
The simulation represents a discrete event simulation. The events all take place
chronologically, and represent state changes at a particular point in the simulation.
The simulation begins with the creation of a fixed number of persons, and the time
at which a new person joining the workforce is generated from an exponential
distribution to move time forward. This step is followed by generating more times
persons joining the workforce, payment of benefits or receiving contribution; an
increment of one since time in the simulation is measured in months. Each event
moves time forward until the capital of the social security becomes negative; the
point of termination in the simulation.
Worst Case Social Security Model
The simulation represents a Poisson Process. Each inter arrival time of a person to
the workforce is independent of the person before them and it occurs at a rate
specified within the simulation.

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## Modeling Simulation Final Project

The simulation is a terminating simulation. The simulation ends when the social
security office becomes bankrupt. This event occurs when the amount of cash paid
out exceeds the amount currently held by the social security office.

The following simplification assumptions were made for the purpose of the model
or imposed by restrictions of the program used to simulate the model:
The maximum number of persons the system can accommodate is 90000
persons.
There are only three levels of contributions and benefit payments.
The simulation time variables are all measured in months.
The simulations values of capital, benefits and payments all in \$100,000.
Persons join the workforce at a random age between 18 and 60 and only
leave the workforce at retirement.
Persons live to a life expectancy based on their gender; 70 years for males
and 76 years for females.
The population ratio for males to females is approximately 1:1.
The input distribution was exponential and was chosen based on data provided by
the Social Security the simulation was modeled on.
Purpose of performing simulation

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Kenji L Logie

## Modeling Simulation Final Project

The purpose of the simulation is to calculate how long it takes for a simulation to go
bankrupt. From this initial question the rate of joining the workforce, return on
capital and the contribution period were all varied individually while holding
everything else constant to determine which variable extended the length of time it
takes to go bankrupt. An average of the time taken to go bankrupt was calculated for
all these variations to the base case.
The model in its current inception models an existing system, in a simplified version
of its worst case scenario. The variation to individual variables in the simulation
(rate of joining the workforce, contribution only periods and return on capital) also
allow recommendations to be made in extended the life of the social security even
under simplified worst case conditions.

## Programing the Worst Case Scenario Simulation

The simulation used was written by the user using the programming language C++.
The program can be divided into three parts. The first part involves generating the
initial population the social security would start with. The second part of the
program involved simulating the contribution only period in which persons
between the age of 18 and 60 paid contributions based on their income level. During
this period persons between the age of 18 and 60 at a specified exponential monthly
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## Modeling Simulation Final Project

rate joined the social security and begin to pay contribution. Persons over the age of
60 do not receive benefits during the period of contribution only. The third part of
the program involves persons joining the workforce, paying contributing, and
paying benefits to persons age 60 or older based on their income level, until they
reach their life expectancy based on their gender. Each part was validated by using
cout statements and the data generated was observed for irregularities. Based upon
these observations all dollar amounts in the simulation are in \$100,000 and the
Mersenne Twister was used instead of C++ standard rand generator.

Running Simulation
Base case conditions
Starting capital = \$750,000
Persons join the social security at a rate of a 150 new persons a month
No return on capital

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Kenji L Logie

## Modeling Simulation Final Project

Simulation

Runtime (seconds)

5.47

8.79

26.2

1.26

3.03

5.47

9.03

13.64

5.47

9.10

11.10

13.63

## 210 contribution only periods

15.65

Termination of Simulation
All simulations performed terminate at the point which the capital held by the social
security plus the contribution is less than the benefits paid out for a particular
month.
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## Capital + Contributions<Benefits Paid Out

Simulation Runs
The simulations were all run a 100 times. The only exception was the base case
which ran 10000 times. Only the base case ran 10,000 times due to the amount of
time of taken for an individual run.

## Results from Simulation

all measurements of time are given in months in the tables except execution
time
Return on capital lower
upper
standard
monthly limit
limit
variance error
xbar
execution time per run
5million
402.344
404.436
28.76
0.536335
402.6
26.20
1 percent return
204.161
206.369 40.3636
0.635324
205.4
8.79
no capital
153.752
155.208 13.9491
0.373485
154.48
5.47

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## Modeling Simulation Final Project

Table showing results of variation of the return on capital for the social security
monthly only.
450
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350
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250

(5 million)Month

200

## (1percent reurn) Month

150
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50

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Graph shows the difference in the length of time the social security goes bankrupt
with a variation in the return on capital
Rate at which
persons join the lower
upper
standard
workforce limit
limit
variance error
xbar
execution time per run
50 139.988 141.452 14.0824
0.375266
140.72
1.26
100 148.114 149.606 14.6267
0.382448
148.86
3.03
150 153.752 155.208 13.9491
0.373485
154.48
5.47
200 159.505 160.795 10.9369
0.330709
160.15
9.03
250
164.16
165.36 9.47717
0.30785
164.76
13.64

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## Modeling Simulation Final Project

Table showing results of variation in rate at which persons join the social security
monthly only.
200
180
160
140
120

rate 50 Month
rate 100 Month

100

rate 200 Month

80

## rate 250 Month

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Graph shows the difference in the length of time the social security goes bankrupt
with a variation in the rate at which persons join the social security monthly
Variation in lower
upper
standard
contribution limit
limit
variance error
60
153.752
155.208 13.9491
0.373485
120
213.556
214.564 6.68623
0.258519
150
244.58
245.342 4.04798
0.201196
180
277.196
277.944 3.68192
0.191883

xbar
execution time per run
154.48
5.47
214.06
9.10
244.95
11.10
277.57
13.63
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210

309.716

310.384

2.93687

0.171373 310.15

15.65

## Table showing results of variation in contribution only period.

350

300

250
contributon period
120(Months)
contribution period 60
(months)

200

(months)
150

## contribution period 180

(months)
contribution period 210
(months)

100

50

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Graph shows the difference in the length of time the social security goes bankrupt
with a variation in the contribution only period

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Kenji L Logie

## Modeling Simulation Final Project

The original question asked when creating this model was; how long would a worst
case simplified social security model take to go bankrupt. After repeating the
original simulation 10,000 times under the base case conditions the following table
contains the results of the experiment.
lower
upper
standard
limit
limit
variance error
xbar
execution time per run
154.947
155.085 12.4408
0.3502715 155.016
5.63

All data generated for results except the base 10,000 case can be found in the
appendix.
Suggestions for Improving the Simulation
An exponential death rate for persons between the age of 18 and 60 should be
developed. A death rate for persons over the age of 60 should only be
developed if a normal case was to be developed. Since a worst case model
means the social security runs out of money; it is normally due to persons
maximize their benefits by living to their life expectancy or greater.
Contributions and benefits should be determined as a percentage of a
persons income.
Persons should be allowed to leave the work force temporary or permanently
for reasons other than death.
The simplification assumptions should be removed one by one for improved
results.
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Kenji L Logie

## Modeling Simulation Final Project

Reference page

Arbez, Birta. Modeling and Simulation Exploring Dynamic System Behaviour . Ottawa: Springer, 2007.
Law, Averill M. and W.David Kelton. Simulation Modeling & Analysis. McGraw-Hill, 1991.
Ross, Sheldon M. Simulation. San Diego: Academic Press, 2006.
Severance, Frank L. System Modeling and Simulation An Intoduction. New York: Wiley, 2001.

Appendix
Data generated by simulation and used to create the graphs
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contribution contribution
contribution
contribution
contribution
period 120
period 60
period 150
period 180
period 210
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rate 50
rate 100
Observation Month
Month
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rate 200
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