Made Poorer by Choice: Worker Outcomes in Social Security vs. Private Retirement Accounts
Board of Governors of the Federal Reserve System
Brad M. Barber
University of California, Davis
University of California, Berkeley - Haas School of Business
July 5, 2016
Can the freedom to choose how retirement funds are invested leave workers worse off? Via simulation, we document that choice in stock v. bond allocation and type of equity investments in private accounts leads to lower utility and greater risk of income shortfalls relative to private accounts without choice. We also compare private account outcomes to currently promised Social Security benefits to demonstrate that a representative worker (an average wage earner) benefits more from private-account alternatives—with or without choice—than do most workers. Thus, representative worker outcome should not be used to assess population-wide benefits of private account alternatives.
Number of Pages in PDF File: 39
Keywords: Social Security, Private Retirement Accounts, Behavioral Finance
JEL Classification: H55, J25
Date posted: October 1, 2012 ; Last revised: July 7, 2016
© 2016 Social Science Electronic Publishing, Inc. All Rights Reserved.
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