How Much Risk is Acceptable?
The financial crisis has sparked proposals to reform the retirement income system. One component of such a system could be a new tier of retirement accounts. These accounts would augment declining Social Security replacement rates for low-wage workers and provide a buffer of security for middle- and upper-wage workers who, increasingly, will rely totally on 401(k) plans to supplement their Social Security. Designing such a new tier requires answering a number of questions: Mandatory or voluntary? Employee and/or employer contributions? Subsidies for low earners? Payments as lump sums or annuities? Tax favored or not? But the most fundamental question is whether the goal of the new tier is to provide a defined contribution account, where the retirement income will depend on market performance, or an account that can provide a certain percent of final earnings ñ that is, a target replacement rate...
|Date of creation:||Nov 2008|
|Date of revision:||Nov 2008|
|Contact details of provider:|| Postal: Hovey House, 140 Commonwealth Avenue, Chestnut Hill, MA 02467|
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- John Karl Scholz & Ananth Seshadri & Surachai Khitatrakun, 2006.
"Are Americans Saving "Optimally" for Retirement?,"
Journal of Political Economy,
University of Chicago Press, vol. 114(4), pages 607-643, August.
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