Samwick - Hurd Comment FINAL 4.07

Discussion of “Changing Progressivity as a Means of Risk Protection in Investment-Based Social Security” by Andrew Samwick” Michael Hurd RAND and NBER An important aspect of the debate about personal retirement accounts concerns their investment in equities. On the one side a main reason for having personal retirement accounts is that indeed they can be invested in equities which historically have a greater rate of return than bonds and a much greater rate of return than the internal rate of return on Social Security contributions. On the other side is the risk that comes with the higher mean rate of return: there are significant chances that a worker could end up worse off than under a Social Security system that has no personal retirement accounts. Of particular concern is the risk to low-wage workers who are unlikely to have other resources to buffer against bad outcomes. Consequently there have been a number of proposals to provide insurance against these unfavorable outcomes. This paper points out that the debate need not be restricted to personal retirement accounts within the structure of the existing Social Security system. Some of the risk from low rates of return in private retirement accounts could be partially offset by increased progressivity in the Social Security program. This is an interesting alternative to insurance against bad outcomes on rates of return and in some ways would be preferable: insurance has the ...