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OutSMarTing the Social Security Crisis

Author

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  • T. Scott Findley

    (Illinois State University, Department of Economics)

  • Frank Caliendo

    (Utah State University, Department of Economics)

Abstract

We present a rule-of-thumb consumption model with participation in a ``Save More Tomorrow TM '' (SMarT) plan, and we analytically derive the fraction of life-cycle wage increases that must be saved to offset a reduction in social security benefits resulting from an aging population (holding taxes fixed and maintaining a balanced social security budget). We find that this ``critical'' SMarT rate is quite low, and much lower than the rate that participants actually used in real-world pilot implementations. This finding generally continues to hold even if wage growth is slow, even if the real return on private saving is low or extremely volatile, and even if enrollment in a SMarT plan is delayed until late in the life cycle. Moreover, we show that participation in a SMarT plan can improve lifetime utility.

Suggested Citation

  • T. Scott Findley & Frank Caliendo, 2007. "OutSMarTing the Social Security Crisis," Public Finance Review, , vol. 35(6), pages 647-668, November.
    • Handle: RePEc:sae:pubfin:v:35:y:2007:i:6:p:647-668
    DOI: 10.1177/1091142107301755
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    References listed on IDEAS

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    Cited by:

    1. Gahramanov Emin, 2016. "On the Demographics and the Severity of the Social Security Crisis," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 1001-1028, April.

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