Hostname: page-component-76fb5796d-qxdb6 Total loading time: 0 Render date: 2024-04-28T06:53:06.860Z Has data issue: false hasContentIssue false
  • English
  • Français

Risk tolerance and retirement income composition

Published online by Cambridge University Press:  09 May 2008

JONATHAN A. SCHWABISH  and
JULIE H. TOPOLESKI
JONATHAN A. SCHWABISH
Affiliation:
Congressional Budget Office (e-mail: jonathan.schwabish@cbo.gov)
JULIE H. TOPOLESKI
Affiliation:
Congressional Budget Office (e-mail: julie.topoleski@cbo.gov)
Get access Rights & Permissions [Opens in a new window]

Summary

Proposed changes to the Social Security system will affect the financial risk workers will face in their retirement differently across the income distribution. This study examines levels of financial risk workers face at different points in the lifetime earnings distribution. To do so, we use a microsimulation model that projects individual demographic and economic characteristics within the context of the Social Security system and the macroeconomy to assess the impact of two policy changes on the levels of lifetime benefits available to current and future retirees. Further, we incorporate data on pensions and savings to illustrate differences in the level and distribution of retirement funds across the earnings distribution. This exercise allows us to assess the financial risk workers face in their retirement, both within the Social Security system itself and within a broader view of the stream of total available retirement funds. We also use survey data to show that low earners are the least willing to tolerate such risk.

Type
Articles
Information
Journal of Pension Economics & Finance , Volume 8 , Issue 2 , April 2009 , pp. 131 - 151
Copyright
Copyright © 2008 Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Ameriks, John, Caplin, Andrew, and Leahy, John (2003) Wealth accumulation and the propensity to plan. Quarterly Journal of Economics, 118(3): 1007–47.CrossRefGoogle Scholar
Autor, David H. and Duggan, Mark G. (2006) The growth in the Social Security disability rolls: a fiscal crisis unfolding. Journal of Economic Perspectives, 20(3): 71–96.CrossRefGoogle Scholar
Biggs, Andrew, Burdick, Clark, and Smetters, Kent (2006) Pricing personal account benefit guarantees: a simplified approach. Presented to the Tax Economists Forum, Washington, DC, 15 November Kent 2006 (October 2006 draft).Google Scholar
Butrica, Barbara A., Smith, Karen E., and Steuerle, C. Eugene (2006) Working for a good retirement. Urban Institute, The Retirement Project, Number 9 (October).CrossRefGoogle Scholar
Congressional Budget Office (2001) Social Security: a primer. Washington, DC (September).Google Scholar
Congressional Budget Office (2004) Long-term analysis of Plan 2 of the President's Commission to Strengthen Social Security. Washington, DC (July).Google Scholar
Congressional Budget Office (2005a) Projected effects of various provisions on Social Security's financial and distributional outcomes. Washington, DC (May).Google Scholar
Congressional Budget Office (2005b) Quantifying uncertainty in the analysis of long-term Social Security projections. Congressional Budget Office Background Paper, Washington, DC (November).Google Scholar
Congressional Budget Office (2006a) Projecting labor force participation and earnings in CBO's long-term microsimulation model. Congressional Budget Office Background Paper, Washington, DC (August).Google Scholar
Congressional Budget Office (2006b) Is Social Security progressive? Congressional Budget Office Economic and Budget Issue Brief, Washington, DC (December).Google Scholar
Congressional Budget Office (2006c) Evaluating benefit guarantees in Social Security. Congressional Budget Office Background Paper, Washington, DC (March).Google Scholar
Congressional Budget Office (2007) The long-term budget outlook. Washington, DC (December).Google Scholar
Coronado, Julia Lynn, Fullerton, Don, and Glass, Thomas (2000) The progressivity of Social Security. National Bureau of Economic Research Working Paper 7520 (February).CrossRefGoogle Scholar
Diamond, Peter A. and Orszag, Peter R. (2004) Saving Social Security: A Balanced Approach. Washington, DC: Brookings Institution Press.Google Scholar
Feldstein, Martin and Samwick, Andrew (1998) The transition path in privatizing Social Security. In Martin, Feldstein (ed.) Privatizing Social Security, Chicago: University of Chicago Press.CrossRefGoogle Scholar
Feldstein, Martin and Liebman, Jeffrey B. (2002) The distributional effects of an investment-based Social Security system. In Martin, Feldstein and Jeffrey, Liebman (eds) The Distributional Aspects of Social Security and Social Security Reform. Chicago: University of Chicago Press.CrossRefGoogle Scholar
Gale, William G., Papke, Leslie E., and VanDerhei, Jack (1999) Understanding the shift from defined benefit to defined contribution plans. Prepared for ERISA After 25 Years: A Framework for Evaluating Pension Reform (September). Available at www.brook.edu/es/events/erisa/99Papers/erisa2.pdf.Google Scholar
Gustman, Alan L. and Steinmeier, Thomas L. (1999) What people don't know about their pensions and Social Security: an analysis using linked data from the Health and Retirement Study. National Bureau of Economic Research Working Paper 7368 (September).CrossRefGoogle Scholar
Haider, Steven J. and Stephens, Mel Jr (2004) How accurate are expected retirement savings? University of Michigan Retirement Research Center Working Paper 2006–128.CrossRefGoogle Scholar
Harris, Amy Rehder, Sabelhaus, John, and Simpson, Michael (2005) Social Security benefit uncertainty under individual accounts. Contemporary Economic Policy, 23(1): 1–16.CrossRefGoogle Scholar
Holden, Karen (1999) Women as widows under a reformed Social Security system. In Olivia, Mitchell, Robert, Myers, and Howard, Young (eds) Prospects for Social Security. Philadelphia: University of Pennsylvania Press.Google Scholar
Kolbe, Jim and Stenholm, Charlie (2002) Bill Summary, 21st Century Retirement Security Act, A Comprehensive Bipartisan Plan to Save Social Security. Available at www.house.gov/kolbe/socsecurity.htm.Google Scholar
Lee, Ronald and Yamagata, Hisashi (2003) Sustainable Social Security: what would it cost? National Tax Journal, 56(1): 27–43.CrossRefGoogle Scholar
Liebman, Jeffrey (2002) Redistribution in the current US Social Security System. In Martin, Feldstein and Jeffrey, Liebman (eds) The Distributional Aspects of Social Security and Social Security Reform. Chicago: University of Chicago Press.Google Scholar
Liebman, Jeffrey, MacGuineas, Maya, and Samwick, Andrew (2005) Nonpartisan Social Security Reform Plan. (December 14). Available at www.ksg.harvard.edu/jeffreyliebman/lms_nonpartisan_plan_description.pdf.Google Scholar
Lusardi, Annamaria (2003) Planning and saving for retirement. Dartmouth College (December). Available at www.dartmouth.edu/~alusardi.Google Scholar
MacGuineas, Maya C (2005) Testimony before the Subcommittee on Social Security of the House Committee on Ways and Means (June 14).Google Scholar
McGarry, Kathleen (2002) Guaranteed income: SSI and the well-being of the elderly poor. In Martin, Feldstein and Jeffrey, Liebman (eds) The Distributional Aspects of Social Security and Social Security Reform. Chicago: University of Chicago Press.Google Scholar
Munnell, Alicia H. and Steven, A. Sass (2006) Social Security and the Stock Market: How the Pursuit of Market Magic Shapes the System. Kalamazoo, Michigan: W.E. Upjohn Institute for Employment Research.CrossRefGoogle Scholar
O'Harra, Josh, Sabelhaus, John, and Simpson, Michael (2004) Overview of the Congressional Budget Office Long-Term (CBOLT) Policy Simulation Model. Congressional Budget Office Technical Paper 2004–1 (January).Google Scholar
The President's Commission to Strengthen Social Security (2001) Strengthening Social Security and creating personal wealth for all Americans (December).Google Scholar
Poterba, James M. and Andrew, A. Samwick (1997) “Household Portfolio Allocation Over the Life Cycle,” National Bureau of Economic Research Working Paper No. 6185 (September).CrossRefGoogle Scholar
Pozen, Robert C (2005) A balancing act. Boston Globe, Op-Ed (January 10): A11.Google Scholar
Sabelhaus, John and Topoleski, Julie (2006) Uncertain policy for an uncertain world: the case of Social Security. forthcoming, Journal of Policy Analysis and Management.Google Scholar
Steuerle, C. Eugene (2005) Testimony before the Subcommittee on Social Security of the House Committee on Ways and Means (June 23).Google Scholar
Sununu, Senator John (2005) The Ryan-Sununu Social Security Personal Savings Guarantee and Prosperity Act. S.857 (April 20).Google Scholar
Tanner, Michael (2004) The 6.2% solution: a plan for reforming Social Security. The Cato Institute Project on Social Security Choice, SSP No. 32 (February).Google Scholar
Zeldes, Stephen P. (1989) Consumption and liquidity constraints: an empirical investigation. Journal of Political Economy, 97(2): 305–46.CrossRefGoogle Scholar