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Spring 2005

ISSN 0890-913X

Volume 20, Number 2

Categories: Spring 2005 | Government Policy

Private Accounts as a Solution to Social Security's Debt

Liqun Liu, Private Enterprise Research Center Texas A&M University

Andrew J. Rettenmaier, Private Enterprise Research Center Texas A&M University

Thomas R. Saving, Private Enterprise Research Center Texas A&M University

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PrivateAccountsasaSolutiontoSocialSecurity=sDebtLiqunLiuAndrewJ.RettenmaierThomasR.SavingPrivateEnterpriseResearchCenterTexasA&MUniversitySocialSecurityreformwillreceiveseriousconsiderationduringthenextfewyearsgiventhecurrentpoliticalclimateandtheincreasedrealizationthatthefundingshortfallswhichbeginin2018areprojectedtogrowthroughouttheprojectionhorizon.Reformscantakemanyforms,butthosethatincludeprepaymentthroughthevehicleofpersonalretirementaccountsappeartobeincreasinginpopularity.Suchreformshavealreadybeenenactedinothercountries.Fundamentally,SocialSecurityisfinancedbyintergenerationaltransfersratherthanbyresourcesbasedonsavingandinvestment.Intergenerationaltransferfinancing,orpay-as-you-gofinancing,isverysensitivetodemographicchanges.Withthesharpdecreaseintheworker/retireeratiocausedbyincreasedlifeexpectancyandreducedbirthrate,theSocialSecuritystatusquo(inwhichthetaxrateandbenefitscheduleremainunchanged)isfinanciallyinsolvent.AsofJanuary1,2004,thetotalfinancingshortfall,measuredbythepresentvalueofscheduledbenefitsinexcessofthescheduledtaxpayments,is$11.9trillion.ThefinancialcrisisoftheSocialSecurityprogramcanberesolvedbytransformingthisprogramintoaretirementsystembasedonprivatelyownedsavingsaccounts.Afundamentalissueofthetransitionfromtheexistingpay-as-you-gosystemtoapre-paidsystemisthedistributionofthetransitioncostsbetweencurrentandfuturegenerations.Inanypay-as-you-goretirementsystemthecurrentgeneration,consistingofthosecurrentlyworkingandretired,isowedadebtintheformofaccruedretirementbenefits.Anymovetoaprepaidsystembasedonprivateaccountsmustfindwaystopay

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Metadata [hide]

Title	Private Accounts as a Solution to Social Security's Debt
Authors/Creators:	Liqun Liu, Private Enterprise Research Center Texas A&M University Andrew J. Rettenmaier, Private Enterprise Research Center Texas A&M University Thomas R. Saving, Private Enterprise Research Center Texas A&M University
Year:	2005
Volume:	20
Number:	2
Pages:	97 - 125
Publisher:	The Association of Private Enterprise Education
ISSN:	0890-913X
Document Type:	Articles

Citation:
Liu, Liqun; Rettenmaier, Andrew J.; Saving, Thomas R. / 2005. "Private Accounts as a Solution to Social Security's Debt." The Journal of Private Enterprise, 20(2): 97-125.