OutSMarTing the Social Security Crisis
Identifieur interne : 000391 ( Main/Exploration ); précédent : 000390; suivant : 000392OutSMarTing the Social Security Crisis
Auteurs : T. Scott Findley ; Frank CaliendoSource :
- Public finance review [ 1091-1421 ] ; 2007-11.
English descriptors
- Teeft :
- Additional income, Additional retirement income, Annuity, Assistant professor, Baseline, Baseline calibration, Baseline estimate, Baseline values, Bequest motive, Boundary conditions, Caliendo, Caliendo outsmarting, Compound interest, Constant fraction, Consumption data, Consumption path, Critical rate, Differential equations, Discount rate, Enrollment date, Extra retirement income, Findley, Full results, Future wage increases, High ratio, Hyperbolic discounting, Jumps discretely, Keynesian consumers, Life cycle, Lifetime utility, Lower ratio, Many others, More tomorrowtm, Optimal level, Optimal rate increases, Other hand, Outsmarting, Pension protection, Percent reduction, Percentage point, Percentage points, Pilot implementations, Pilot studies, Public economics, Public finance review, Rate baseline wage growth rate, Rate increases, Real rate, Real return, Real wage growth, Representative agent, Retiree, Retirement annuity, Retirement period, Retirement survey, Review thaler, Richard thaler, Right side, Savings account, Sensitivity analysis, Shlomo benartzi, Small number, Smart, Smart default, Smart participation, Smart plan, Smart program, Smart rate, Smart rate date, Smart rate enrollment date, Smart rate rate, Smart rates, Social security, Social security crisis, Stanley fischer, Thaler, Trust fund, Wage growth, Wage increases.
Abstract
We present a rule-of-thumb consumption model with participation in a ``Save More TomorrowTM'' (SMarT) plan, and we analytically derive the fraction of life-cycle wage increases that must be saved to offset a reduction in social security benefits resulting from an aging population (holding taxes fixed and maintaining a balanced social security budget). We find that this ``critical'' SMarT rate is quite low, and much lower than the rate that participants actually used in real-world pilot implementations. This finding generally continues to hold even if wage growth is slow, even if the real return on private saving is low or extremely volatile, and even if enrollment in a SMarT plan is delayed until late in the life cycle. Moreover, we show that participation in a SMarT plan can improve lifetime utility.
Url:
DOI: 10.1177/1091142107301755
Affiliations:
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<front><div type="abstract" xml:lang="en">We present a rule-of-thumb consumption model with participation in a ``Save More TomorrowTM'' (SMarT) plan, and we analytically derive the fraction of life-cycle wage increases that must be saved to offset a reduction in social security benefits resulting from an aging population (holding taxes fixed and maintaining a balanced social security budget). We find that this ``critical'' SMarT rate is quite low, and much lower than the rate that participants actually used in real-world pilot implementations. This finding generally continues to hold even if wage growth is slow, even if the real return on private saving is low or extremely volatile, and even if enrollment in a SMarT plan is delayed until late in the life cycle. Moreover, we show that participation in a SMarT plan can improve lifetime utility.</div>
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