The Transition Path in Privatizing Social Security
This paper analyzes the transition from the existing pay-as-you-go Social Security program to a system of funded Mandatory" Individual Retirement Accounts (MIRAs). Because of the high return on real capital relative to the very low return in a mature pay-as-you-go program, the benefits that can be financed with the existing 12.4 percent payroll tax could eventually be funded with mandatory contributions of only 2.1 percent of payroll. A transition to that fully funded program could be done with a surcharge of less than 1.5 percent of payroll during the early part of the transition. After 25 years, the combination of financing the pay-as-you-go benefits and accumulating the funded accounts would require less than the current 12.4 percent of payroll. The paper also discusses how a MIRA system could deal with the benefits of low income employees and with the risks associated with uncertain longevity and fluctuating market returns.
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Copy CitationMartin Feldstein and Andrew Samwick, "The Transition Path in Privatizing Social Security," NBER Working Paper 5761 (1996), https://doi.org/10.3386/w5761.
Published Versions
Privatizing Social Security, Feldstein, Martin, ed., Chicago: Universityof Chicago Press, 1998, pp. 215-260.
The Transition Path in Privatizing Social Security, Martin Feldstein, Andrew Samwick. in Privatizing Social Security, Feldstein. 1998