"Would a Privatized Social Security System Really Pay a Higher Rate of Return?"
Framing the Social Security Debate: Values, Politics, and Economics
Editor(s): R. Douglas Arnold, Michael J. Graetz, and Alicia H. Munnell
© Brookings,
1998
Publication type: Chapter
Research Archive Topic: Business Economics and Public Policy
Abstract
Our goal in this paper is to challenge the following popular argument: projected returns to Social Security are low relative to expected returns on stocks and bonds, and therefore everyone would receive higher returns and be better off if the United States moved to a privatized system where individuals could directly invest their contributions in stocks and bonds. We argue that for household with access to diversified capital markets, privatization without prefunding would not increase Social Security returns, when properly measured. Privatization together with prefunding would eventually raise the rate of return to future generations of participants, but at the cost of a lower rate of return to early generations.
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