Providing Guarantees in Social Security

Karen Smith (), C. Eugene Steuerle and Pablo Montagnes ()
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Pablo Montagnes: Urban Institute

Working Papers, Center for Retirement Research at Boston College from Center for Retirement Research

Abstract: Some Social Security reforms would provide guarantees that individuals would not receive less under a reformed system than would be provided by current law. However, the “current law” benefit formula increases benefits when wages rise. Any reform successfully adding to economic growth, therefore, would affect those promised levels of benefits, as well as revenues and the interest rates that determine what could be earned and paid out of individual accounts. This paper concludes that guarantees could add significantly to the costs of Social Security, reduce any reduction in budget imbalance achieved through other parts of a reform, and add to taxes, direct or implicit, that must be paid to cover those costs. Stock and bond market variation, as well as variation in returns on individual accounts, also add to costs when reform contains a guarantee, as government bears mainly downside risks. A variety of examples are provided for one generic type of reform.

Keywords: social security; reform (search for similar items in EconPapers)
JEL-codes: H55 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2004-08
New Economics Papers: this item is included in nep-lab, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:crr:crrwps:2004-21

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