KAREN C. BURKE, University of San Diego School of Law
Email: burkek@sandiego.edu
GRAYSON M.P. MCCOUCH, University of San Diego School of Law
Email: gmccouch@sandiego.edu

Widespread concerns about the long-term fiscal gap in Social Security have prompted various proposals for structural reform, with individual accounts as the centerpiece. Carving out individual accounts from the existing system would shift significant risks and responsibilities to individual workers. A parallel development has already occurred in the area of private pensions. Experience with 401(k) plans indicates that many workers will have difficulty making prudent decisions concerning investment and withdrawal of funds. Moreover, in implementing any system of voluntary individual accounts, it will be important to design default settings that provide appropriate guidance for workers with heterogeneous levels of financial sophistication and risk tolerance. The central goal of Social Security reform should be to close the fiscal gap in a way that preserves rather than undermines the existing system of mandatory defined benefits for all workers.

TORBEN M. ANDERSEN, University of Aarhus - Department of Economics, CESifo (Center for Economic Studies and Ifo Institute for Economic Research), Centre for Economic Policy Research (CEPR), Institute for the Study of Labor (IZA)
Email: tandersen@econ.au.dk
JOYDEEP BHATTACHARYA, Iowa State University - Department of Economics
Email: joydeep@iastate.edu

This paper revisits the role played by myopia in generating a theoretical rationale for pay-as-you-go social security in dynamically efficient economies. Contrary to received wisdom, if the real interest rate is exogenously fixed, enough myopia may justify public pensions but never alongside positive private savings. With sufficient myopia, co-existence of positive optimal pensions and positive private saving is possible if the real interest rate on saving evolves endogenously, as in a model with a neoclassical technology.

MUHAMMAD RAHMAN, Indiana University Bloomington
Email: murahman@indiana.edu

In this paper, I analyze consumption, aggregate savings, output and welfare implications of five different social security arrangements whenever there is demographic uncertainty. Following Bohn (2002), I analyze the effect of an uncertain population growth in an extended version of a modified Life-cycle model developed by Gertler (1999). Population growth dampens savings and output under all arrangements. Pay-as-you-go-Defined Benefit system appears to fare better than all other alternatives, falling short of the private annuity market with no pension system. But social security in general increases social welfare, with Fully Funded systems faring the best. Thus there appears to be a clear trade-off between growth and social welfare. The social security system also reduces the volatility of the economy.

CASSANDRA R. COLE, Florida State University - College of Business
Email: ccole@cob.fsu.edu
ANDRE P. LIEBENBERG, University of Mississippi
Email: aliebenberg@bus.olemiss.edu

This article uses a consistent methodology to estimate several retirement income adequacy measures for households that participate in two national surveys. In addition, we examine the impact of a variety of factors on retirement preparedness. We find that Survey of Consumer Finances households have higher income replacement rates, but lower consumption replacement rates, than Health and Retirement Survey households. We also find that replacement rate estimates are sensitive to the treatment of home equity and assumed retirement age. Finally, the impact of household characteristics on the likelihood of being better prepared for retirement differs depending on the survey data and retirement income adequacy measure used.

JOHANNES BINSWANGER, Tilburg University
Email: J.Binswanger@uvt.nl
DANIEL SCHUNK, Institute for Empirical Research in Economics, University of Zurich
Email: mail@daniel-schunk.de

Many economists and policy-makers argue that households do not save enough to maintain an adequate standard of living during retirement. However, there is no consensus on the answer to the underlying question what this standard should be, despite the fact that it is crucial for the design of saving incentives and pension reforms. We address this question with a survey, individually tailored to each respondent's financial situation, conducted both in the U.S. and the Netherlands. Key findings are that adequate levels of retirement spending exceed 70 percent of working life spending, and minimum acceptable replacement rates depend strongly on income.