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How Will Higher Tax Rates Affect the National Retirement Risk Index?


  • Alicia H. Munnell
  • Anthony Webb
  • Francesca Golub-Sass


The National Retirement Risk Index (NRRI) measures the share of American households ‘at risk’ of being unable to maintain their pre-retirement standard of living in retirement. The calculations are based on the assumption that taxes remain at current levels. But federal government spending as a percentage of GDP is projected to increase rapidly in coming decades. To help bridge the gap between revenue and spending, policymakers could decide to substantially increase the personal income tax, raise Social Secu­rity payroll taxes, and establish additional revenue sources such as a value-added tax. This brief explores how such tax increases could affect the percentage of households ‘at risk.’ This brief is structured as follows. The first section recaps the NRRI. The second describes how much taxes could increase. The third section describes the channel through which higher taxes may affect retire­ment preparedness. The fourth section presents the impact of plausible tax increases on the percentage of households ‘at risk.’ The final section concludes that higher taxes will have a relatively modest effect on the NRRI for most groups – the exception being high-income households on the cusp of retirement. It also cautions that the effect could be substantially greater if people reduce their saving in response to an unprecedented increase in taxes, and that the increase in the NRRI tells only half the story because economic well-being as measured by consumption will be lower both before and after retirement.

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  • Alicia H. Munnell & Anthony Webb & Francesca Golub-Sass, 2010. "How Will Higher Tax Rates Affect the National Retirement Risk Index?," Issues in Brief ib2010-19, Center for Retirement Research, revised Dec 2010.
  • Handle: RePEc:crr:issbrf:ib2010-19

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    References listed on IDEAS

    1. Gur Huberman & Sheena Iyengar & Wei Jiang, 2007. "Defined Contribution Pension Plans: Determinants of Participation and Contributions Rates," Journal of Financial Services Research, Springer;Western Finance Association, vol. 31(1), pages 1-32, February.
    2. Alicia H. Munnell & Francesca Golub-Sass & Dan Muldoon, 2009. "An Update on 401(k) Plans: Insights From the 2007 SCF," Issues in Brief ib2009-9-5, Center for Retirement Research, revised Mar 2009.
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