The Predictability of Retirement Income

By: Lawrence H. Thompson
Published: September 1998
Social Security Brief No. 3 ~ September 1998

Summary: Predictable pensions, whose benefits bear some relationship to the standard of living when a worker retires, are desirable in any retirement system. Both defined-benefit plans, like Social Security, and defined-contribution plans, like individual retirement savings accounts, pose risks, but they are different. Hence, a mixed system might be the best balance. The United States already has a mixed system: (1) the public Social Security system which provides a predictable base of retirement income, but with relatively modest benefits for middle and upper income workers; and (2) the private system, with a large employer pension and retirement saving industry, that has been shifting toward a defined-contribution model. America does not need to privatize Social Security to achieve a mixed system.