What Does It Cost To Guarantee Returns?

Alex Golub-SassAlicia H. MunnellAnthony Webb Richard W. Kopcke

IB#9-4

The brief’s key findings are:

  • The financial crisis suggests the need for a new universal tier of retirement saving accounts to supplement Social Security and 401(k)s.
  • To prevent large drops in asset values and fluctuations in replacement rates, policymakers might find it desirable to provide guarantees.
  • But low guarantees would have had no effect historically.
  • And finance theory says that high guarantees are prohibitively expensive.
  •  The only way to provide high guarantees is if the government were willing and able to bear more risk than other investors.