NCPA - National Center for Policy Analysis

THE RETTENMAIER AND SAVING PLAN

November 16, 2005

To reform Social Security benefits, economists Andrew J. Rettenmaier and Thomas R. Saving developed a formula that will combine progressive, price indexed benefits with personal retirement accounts funded by 4 percent payroll contributions.

The benefits will have these features:

  • The progressive price-indexed benefit for very low income workers would remain at 100 percent of benefits promised under current law.
  • By contrast, the progressive price indexed benefit will equal only 56 percent of benefits promised under current law for the highest earners by the time today's five year olds reach the retirement age.
  • Personal retirement account annuities will provide an increasing percentage of total retirement benefits over time for higher earners, primarily because their scheduled benefits are a smaller percentage of lifetime earnings.

The combination of private annuities and government-paid benefits will provide a retirement income for high income workers approximately equal to their currently promised benefits -- and a retirement income for low earners that is greater than currently promised benefits. At the same time, this will make Social Security solvent for the long run, say Rettenmaier and Saving.

Source: Andrew J. Rettenmaier and Thomas R. Saving, "Will the President's Proposal Solve Social Security's Crisis?" National Center for Policy Analysis, Report No. 280, November 16, 2005.

For text:

http://www.ncpa.org/pub/st280

 

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