The Transition Path in Privatizing Social Security
AbstractThis paper analyzes the transition from the existing pay-as-you-go Social Security program to a system of funded Mandatory" Individual Retirement Accounts (MIRAs). Because of the high return on real capital relative to the very low return in a mature pay-as-you-go program, the benefits that can be financed with the existing 12.4 percent payroll tax could eventually be funded with mandatory contributions of only 2.1 percent of payroll. A transition to that fully funded program could be done with a surcharge of less than 1.5 percent of payroll during the early part of the transition. After 25 years, the combination of financing the pay-as-you-go benefits and accumulating the funded accounts would require less than the current 12.4 percent of payroll. The paper also discusses how a MIRA system could deal with the benefits of low income employees and with the risks associated with uncertain longevity and fluctuating market returns.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5761.
Date of creation: Sep 1996
Date of revision:
Publication status: published as Privatizing Social Security, Feldstein, Martin, ed., Chicago: Universityof Chicago Press, 1998, pp. 215-260.
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Other versions of this item:
- Martin Feldstein & Andrew Samwick, 1998. "The Transition Path in Privatizing Social Security," NBER Chapters, in: Privatizing Social Security, pages 215-264 National Bureau of Economic Research, Inc.
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
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