How Would Financial Risk Affect Retirement Income Under Individual Accounts?
October 2000
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...
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Gary Burtless is a Senior Fellow at The Brookings Institution. This brief is based on a paper that was originally prepared for the international conference on "Social Security Reform in Advanced Countries," University of Tokyo, Japan, September 6-7, 1999. The Center for Retirement Research at Boston College provided partial support for this paper. The paper was subsequently published as a working paper by The Brookings Institution, Center on Social and Economic Dynamics under the title "Social Security Privatization and Financial Market Risk" (Working Paper No. 10, February 2000).