Implications of Some Deficit Reduction Proposals for Retirement Savings
11 Pages Posted: 11 Jul 2011 Last revised: 26 Aug 2011
Date Written: August 25, 2011
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
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