Implications of Some Deficit Reduction Proposals for Retirement Savings

11 Pages Posted: 11 Jul 2011 Last revised: 26 Aug 2011

See all articles by Gaobo Pang

Gaobo Pang

Mark J. Warshawsky

Towers Watson; Mercatus Center at George Mason University

Date Written: August 25, 2011

Abstract

We assess the implications for workers' retirement planning of the provisions on Social Security, Medicare and 401(k) plans from deficit reduction proposals that were put forward by national commissions in 2010. The evaluation uses an updated version of our retirement savings model, which is a rational forward-looking framework that aims to guide a household toward maintaining a roughly constant standard of living before and after retirement. The results show that most of the proposed reforms would lead to higher retirement savings for the household situations illustrated. By contrast, the increase in the Social Security taxable wage maximum would lead to a decrease in retirement savings. Taking all the proposals together, saving rates would be increased by 1-2.3 percentage points, and target retirement replacement rates would increase or decrease depending on household situations.

Keywords: defined contribution (DC), health reform, Social Security, Medicare, retirement

JEL Classification: J26, D91, I18, H55

Suggested Citation

Pang, Gaobo and Warshawsky, Mark J., Implications of Some Deficit Reduction Proposals for Retirement Savings (August 25, 2011). Available at SSRN: https://ssrn.com/abstract=1881134 or http://dx.doi.org/10.2139/ssrn.1881134

Mark J. Warshawsky

Towers Watson ( email )

Arlington, VA
United States

Mercatus Center at George Mason University

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

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