UM99-Q1: Risk Sharing Under Alternative Social Security Reform Proposals
Researchers
Abstract
Personal accounts are appealing in the context of Social Security reform for several reasons. One is that such accounts would give workers ownership and a degree of responsibility over their own retirement saving. Another is that personal accounts would afford participants an opportunity to pass wealth tosurvivors in the event of premature death. Personal accounts would also benefit divorced persons who are not eligible to receive Social Security spousal benefits unless they remain married ten years. Yet another factor favoring personal accounts is that workers could chose how to allocate their retirement saving and diversify their investments over a range of capital market assets. Some also argue that personal accounts would provide all workers a higher rate of return than can be paid under the current Social Security system. The policy brief explores the limits of this last argument. It shows that Social Security returns are projected to be low mainly because today’s workers are committed to paying for the system’s past debt. After clarifying several key terms, it discusses reform scenarios involving these concepts.
Publications
- Would a Privatized Social Security System Really Pay a Higher Rate of Return? (Conference Paper)
- Personal Accounts and Social Security Reform (Research Brief)