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Providing Guarantees in Social Security

  • Karen E. Smith

    ()

    (Urban Institute)

  • C. Eugene Steuerle

    ()

    (Urban Institute)

  • Pablo Montagnes

    ()

    (Urban Institute)

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.

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File URL: http://crr.bc.edu/working-papers/providing-guarantees-in-social-security/
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Paper provided by Center for Retirement Research in its series Working Papers, Center for Retirement Research at Boston College with number 2004-21.

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Length: 25 pages
Date of creation: Aug 2004
Date of revision:
Handle: RePEc:crr:crrwps:2004-21
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  1. Bosworth, Barry & Burtless, Gary, 2004. "Pension Reform and Saving," National Tax Journal, National Tax Association, vol. 57(3), pages 703-27, September.
  2. Samwick, Andrew & Feldstein, Martin, 2001. "Potential Paths of Social Security Reform," Scholarly Articles 2920119, Harvard University Department of Economics.
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