Not only is there no one sure-fire way to fix Social Security, but even assessing the proposals is a real challenge, according to a recent award-winning research article.
TIAA-CREF's fourth annual Paul A. Samuelson Award for Outstanding Scholarly Writing on Lifelong Financial Security was awarded to John Geanakoplos of Yale University, Olivia S. Mitchell of The Wharton School, and Stephen P. Zeldes of Columbia University for "Social Security's Money's Worth."
It critiques some of the most common measures used for comparing potential outcomes, looking at how concepts such as the net present value of the unfunded Social Security liability, the internal rate of return on Social Security contributions and the benefit-to-tax ratio are used.
The researchers conclude that any realistic solution needs to address households' financial well-being, for which there is no general statistic.
"Money's-worth" estimates often are biased in favor of privatization because they don't fully weigh the impact of transaction costs of moving money into the stock market or of investment risks, they said.
The study finds that the benefits of investing in the stock market as a way of fixing Social Security have been overstated. The present-value gain of investing a dollar of Social Security assets in equities, rather than bonds, would be 59 cents when properly adjusted for risk factors, rather than the $2.85 reported by previous studies.
The authors will split a $20,000 cash prize, to be presented Jan. 7 at the Allied Social Science Association's annual meeting in Boston.
"The judges felt the study should be the starting point for almost any discussion of Social Security policy," said Mark J. Warshawsky, director of research for New York-based TIAA-CREF Institute, an educational and research arm of TIAA-CREF.
