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on Public Finance |
| By: | Alicia H. Munnell (Center for Retirement Research at Boston College) |
| Abstract: | President Bush plans to use his political capital to "privatize" a portion of the Social Security program. Whether or not such a change is desirable and the extent to which it solves Social Security's financing problems will dominate much of the policy agenda over the next few years. This Issue in Brief is intended to highlight the key points in the debate. First, it documents the magnitude of the Social Security financing problem. An enormous problem may justify a complete restructuring, while a more modest problem may call for marginal adjustments. Second, it clarifies that the privatization debate usually encompasses two separate issues - how to close Social Security's financing gap and how to structure benefits. Third, it addresses the slightly esoteric, but quite important issue, of how to account for the higher expected returns earned on more risky assets. The conclusion, to the extent that one emerges from this overview, is that the issues are extremely complicated and that solving Social Security's solvency problem requires serious decisions - rather than a silver bullet. |
| Keywords: | social security, debate, privatization |
| JEL: | H55 J26 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ib25&r=pub |
| By: | Alicia H. Munnell (Center for Retirement Research at Boston College) |
| Abstract: | The Trustees of the Social Security system have just issued the 2005 report. The projections used in this report are prepared by Social Security's Office of the Actuary. The Report projects the system's financial outlook under three sets of cost assumptions - high, low and intermediate. This Just the Facts focuses on the intermediate assumptions and puts this year's numbers in perspective. |
| Keywords: | trustees report |
| JEL: | H55 D31 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:crr:jusfac:jtf_16&r=pub |
| By: | Karen E. Smith (Urban Institute); C. Eugene Steuerle (Urban Institute); Pablo Montagnes (Urban Institute) |
| Abstract: | Some Social Security reforms would provide guarantees that individuals would not receive less under a reformed system than would be provided by current law. However, the “current law” benefit formula increases benefits when wages rise. Any reform successfully adding to economic growth, therefore, would affect those promised levels of benefits, as well as revenues and the interest rates that determine what could be earned and paid out of individual accounts. This paper concludes that guarantees could add significantly to the costs of Social Security, reduce any reduction in budget imbalance achieved through other parts of a reform, and add to taxes, direct or implicit, that must be paid to cover those costs. Stock and bond market variation, as well as variation in returns on individual accounts, also add to costs when reform contains a guarantee, as government bears mainly downside risks. A variety of examples are provided for one generic type of reform. |
| Keywords: | social security, reform |
| JEL: | H55 |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:2004-21&r=pub |
| By: | Gary V. Engelhardt (Syracuse University); Anil Kumar (Center for Policy Research) |
| Abstract: | This paper examines the potential impact of government matching contributions on personal-account participation in the President's Commission on Strengthening Social Security's Model 3 for Social Security reform. Given the government's choice of four plan-design parameters, the magnitude of the match is determined solely by the differential return personal-account assets receive above the notional return, referred to as the "personal-account premium," akin to the equity premium. The impact of matching on personal-account participation is simulated for older workers (ages 40 to 65) in the first wave of the Health and Retirement Study (HRS) using empirical estimates from a structural model of the impact of employer matching on participation in corporate 401(k) plans. For a personal-account premium of five percentage points, which implies a match rate of 12.5 percent for middle- to lower-income workers, the simulations imply that 53 percent of older workers would participate in voluntary personal accounts. The response of participation to matching is very inelastic; it is very unlikely that participation by older workers would achieve the mid-range assumption by the Commission of 67 percent. There is substantial heterogeneity in participation across subsets of older workers: participation would be the lowest for low-educated, minority, and unmarried older workers. |
| Keywords: | social security, reform, matching |
| JEL: | H55 J14 J15 |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:2004-22&r=pub |