How Would Financial Risk Affect Retirement Income Under Individual Accounts?

Gary Burtless

IB#5

Introduction

A popular proposal for reforming Social Security is to supplement or replace traditional publicly financed benefits with a new system of mandatory, defined contribution private pensions. Proponents claim that private plans offer better returns than traditional Social Security. To achieve higher returns, however, contributors are exposed to extra risks associated with financial market fluctuations. This Issue in Brief offers evidence on the extent of these risks by considering the hypothetical pensions U.S. workers would have obtained during the past century if they had accumulated retirement savings in individual accounts…