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Social security versus private retirement accounts: a historical analysis

Author

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  • Thomas A. Garrett
  • Russell M. Rhine

Abstract

This paper compares Social Security benefits relative to those paid from private investments: specifically, whether 2003 retirees would gain more retirement income if they had invested their payroll taxes in private accounts during their working years. Three different retirement ages and four possible earnings levels are considered for two private investments-6-month CDs or the S&P 500. On average, the results suggest less than 5 percent of current retirees would receive a higher monthly benefit with Social Security. Several Social Security reform proposals are described.

Suggested Citation

  • Thomas A. Garrett & Russell M. Rhine, 2005. "Social security versus private retirement accounts: a historical analysis," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 103-121.
  • Handle: RePEc:fip:fedlrv:y:2005:i:mar:p:103-121:n:v.87no.2,pt.1
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    References listed on IDEAS

    as
    1. Lyon, Andrew B. & Stell, John L., 2000. "Analysis of Current Social Security Reform Proposals," National Tax Journal, National Tax Association, vol. 53(n. 3), pages 473-514, September.
    2. Boskin, Michael J. & Hurd, Michael D., 1978. "The effect of social security on early retirement," Journal of Public Economics, Elsevier, vol. 10(3), pages 361-377, December.
    3. Feldstein, Martin & Dicks-Mireaux, Louis & Poterba, James, 1983. "The effective tax rate and the pretax rate of return," Journal of Public Economics, Elsevier, vol. 21(2), pages 129-158, July.
    4. John Geanakoplos & Olivia S. Mitchell & Stephen P. Zeldes, "undated". "Social Security Money's Worth," Pension Research Council Working Papers 97-20, Wharton School Pension Research Council, University of Pennsylvania.
    5. Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March.
    6. Gramlich, Edward M, 1996. "Different Approaches for Dealing with Social Security," American Economic Review, American Economic Association, vol. 86(2), pages 358-362, May.
    7. Boskin, Michael J, 1978. "Taxation, Saving, and the Rate of Interest," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 3-27, April.
    8. Luisa Fuster, 1999. "Is Altruism Important for Understanding the Long-Run Effects of Social Security?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 616-637, July.
    9. Boskin, Michael J, 1977. "Social Security and Retirement Decisions," Economic Inquiry, Western Economic Association International, vol. 15(1), pages 1-25, January.
    10. Alan J. Auerbach & Laurence J. Kotlikoff, 1984. "Simulating Alternative Social Security Responses to the Demographic Transition," NBER Working Papers 1308, National Bureau of Economic Research, Inc.
    11. Campbell, Colin D & Campbell, Rosemary G, 1976. "Conflicting Views on the Effect of Old-Age and Survivors Insurance on Retirement," Economic Inquiry, Western Economic Association International, vol. 14(3), pages 369-388, September.
    12. Thomas Cooley & Jorge Soares, 1999. "Privatizing Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 731-755, July.
    13. Lyon, Andrew B. & Stell, John L., 2000. "Analysis of Current Social Security Reform Proposals," National Tax Journal, National Tax Association, vol. 53(3), pages 473-514, September.
    14. Michael J. Boskin, 1978. "Taxation, Saving, and the Rate of Interest," NBER Chapters,in: Research in Taxation, pages 3-27 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Malliaris, A.G. & Malliaris, Mary E., 2008. "Investment principles for individual retirement accounts," Journal of Banking & Finance, Elsevier, vol. 32(3), pages 393-404, March.
    2. Thomas A. Garrett & Russell M. Rhine, 2006. "On the size and growth of government," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 13-30.

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