TY - JOUR AU - Geanakoplos,John AU - Zeldes,Stephen P. TI - Reforming Social Security with Progressive Personal Accounts JF - National Bureau of Economic Research Working Paper Series VL - No. 13979 PY - 2008 Y2 - May 2008 UR - http://www.nber.org/papers/w13979 L1 - http://www.nber.org/papers/w13979.pdf N1 - Author contact info: John Geanakoplos Department of Economics Yale University Box 208281 New Haven, CT 06520-8281 Tel: 203/432-3397 Fax: 203/432-6167 E-Mail: john.geanakoplos@yale.edu Stephen P. Zeldes Graduate School of Business Columbia University 3022 Broadway, Uris 825 New York, NY 10027-6902 Tel: 212/854-2492 Fax: 212/208-4699 E-Mail: stephen.zeldes@columbia.edu M1 - published as John Geanakoplos, Stephen P. Zeldes. "Reforming Social Security with Progressive Personal Accounts," in Jeffrey Brown, Jeffrey Liebman and David A. Wise, editors, "Social Security Policy in a Changing Environment" University of Chicago Press (2009) M3 - presented at "Retirement Research", October 19-22, 2006 AB - The heated debate about how to reform Social Security has come to a standstill because the view of most Democrats (that Social Security must be a defined benefits plan similar in spirit to the current system) seems irreconcilable with the proposals supported by many Republicans (to create a defined contribution system of personal accounts holding marketed assets). We describe a system of "progressive personal accounts" that preserves the core goals of both parties, and that is self-balancing on an ongoing basis. Progressive personal accounts have two critical features: (1) accruals into the personal accounts would be exclusively in a new kind of derivative security (which we call a PAAW for Personal Annuitized Average Wage security) that pays its owner one inflation-corrected dollar during every year of life after his statutory retirement date, multiplied by the economy wide average wage at the retirement date and (2) households would buy their new PAAWs each year with their social security contributions, augmented or reduced by a government match that would add to contributions from households with low lifetime incomes by taking from households with high lifetime incomes. PAAWS define benefits and achieve risk sharing across generations, as Democrats would like, yet can be held in personal accounts with market valuations, as Republicans propose. ER -