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<p>Survivability of the Social Security reserve is essential for the continuity of the welfare system. We take a novel approach to studying an optimal investment policy for the Social Security reserve that maximizes its survivability prospects. Applying a battery of optimization techniques, we find (i) High susceptibility to initial conditions: Countries that start with a low reserve-to-outflow ratio must invest heavily in stocks, whereas relatively rich economies can afford a more conservative portfolio. (ii) Survivability generally increases with the degree of exposure to stocks. (iii) A tradeoff exists between survivability in the short and long run. Societies that favor long-term survivability invest more in stocks,&#xa0;whereas countries that prefer avoiding default in the short run invest in bonds. Simulations show, however, that the discount rate must be unusually high for bonds to dominate stocks. Applying our results to the U.S., we find that a shift from the current investment regime to the suggested optimum improves welfare by 138 percent.</p>

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The optimal asset allocation of national insurance funds

  • 期刊论文

  • 发表日期：

    2026年5月17日

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  • Natalia Gitelson,
  • Eran Manes

摘要

Survivability of the Social Security reserve is essential for the continuity of the welfare system. We take a novel approach to studying an optimal investment policy for the Social Security reserve that maximizes its survivability prospects. Applying a battery of optimization techniques, we find (i) High susceptibility to initial conditions: Countries that start with a low reserve-to-outflow ratio must invest heavily in stocks, whereas relatively rich economies can afford a more conservative portfolio. (ii) Survivability generally increases with the degree of exposure to stocks. (iii) A tradeoff exists between survivability in the short and long run. Societies that favor long-term survivability invest more in stocks, whereas countries that prefer avoiding default in the short run invest in bonds. Simulations show, however, that the discount rate must be unusually high for bonds to dominate stocks. Applying our results to the U.S., we find that a shift from the current investment regime to the suggested optimum improves welfare by 138 percent.