Social Security Privatization and Market Risk
AbstractUnder Social Security privatization, workers would be allowed to divert some of the money that currently goes to Social Security into private accounts. This would expose them to market risk, that is, the risk of a substantial drop in equity prices or of a prolonged bear market. This could result in generations of workers with less money than they thought they would have for retirement. Depending on a worker's birth date, if the privatization approach proposed by President Bush's Commission to Strengthen Social Security had been enacted at the start of the Social Security program, the retirement benefits generated from putting 10% of earnings in a private account for 35 years would have ranged from 100% to less than 20% relative to pre-retirement earnings. The extraordinarily high retirement income generated from the booming 1990s stock market was the equivalent of winning the generational lottery-unlikely to be repeated regularly. Even under these beneficial circumstances, a privatized system could have cost the government more than $1 trillion in today's dollars over the past 3 decades if the government decided to help out those who accumulated too little for retirement. The primary alternative to a government bailout of the Social Security system, older workers working longer, would likely not generate the desired results. Workers wanting to work longer would create labor market pressures typically at times when unemployment is already high. Copyright 2006 by The Policy Studies Organization.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Policy Studies Organization in its journal Review of Policy Research.
Volume (Year): 23 (2006)
Issue (Month): 2 (03)
Contact details of provider:
Web page: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1541-1338
More information through EDIRC
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.