Abstract
The United States directly provides fewer public benefits such as Social Security than other countries.2 However, it foregoes a much larger share of tax revenue to incentivize private savings in addition to public benefits than is the case in other countries. The US welfare state as a result tends to be as large or larger than that in Western Europe,3 with savings incentives—tax breaks for individual savings and insurance— taking on a much larger role.
How would you personally define what a secure retirement means to you?1
“Oh god, I was never even offered a 401(k). I’m not gonna have any retirement; only Social Security, that’s it.” (White man, 58 years old).
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Notes
For a discussion of the US retirement system compared to other countries, see Christian Weller, “The Future of Public Pensions,” Cambridge Journal of Economics 28, no. 4 (July 2004), 489–504.
Organisation for Economic Cooperation and Development (OECD), “Social Expenditure Update—Social Spending Is Falling in Some Countries, but in Many Others It Remains at Historically High Levels” (Paris, France: OECD, November 2014), 8. In 2014, the OECD ranked the United States second for net total social expenditure, which includes direct taxes and social contributions, indirect taxes and net tax breaks for social purposes. It also includes tax incentives for retirement savings. See also Len Burman and Joel Slemrod, “The Hidden Welfare State,” in Taxes in America: What Everyone Needs to Know (New York, NY: Oxford University Press, 2013) for a description of personal tax expenditures.
Stefano DellaVigna, “Psychology and Economics: Evidence from the Field,” Journal of Economic Literature 47, no. 2 (2009), 315–372, doi: 10.1257/jel.47.2.315
For an easily accessible summary of the relevant literature, see Cass Sunstein and Richard Thaler, Nudge: Improving Decisions about Health, Wealth, and Happiness (London, UK: Penguin Books, 2009), 120–133. For a discussion of the rules of thumb that households use in making investment decisions in 401(k) type accounts,
see also Shlomo Bernartzi and Richard Thaler, “Heuristics and Biases in Retirement Savings Behavior,” Journal of Economic Perspectives 21, no. 3 (Summer 2007), 81–104.
Christian Weller, “Making Sure Money Is Available When We Need It” (Washington, DC: Center for American Progress, March 2013);
Christian Weller, “Protecting Retirement Wealth,” Challenge 56, no. 4 (2013), 51–88, doi:10.2753/0577–5132560405;
Christian Weller and Sara Bernardo, “Putting Retirement at Risk: Has Financial Risk Exposure Grown Faster for Older Households than Younger Ones?” Working Paper (Boston, MA: Gerontology Institute, UMass Boston, 2014).
For a proposal with an explicit government guarantee, see Teresa Ghilarducci, When I’m Sixty-Four: The Plot against Pensions and the Plan to Save Them (Princeton, NJ: Princeton University Press, 2008);
Teresa Ghilarducci, Robert Hiltonsmith, and Lauren Schmitz, “State Guaranteed Retirement Accounts” Working Paper (New York, NY: Demos, Schwartz Center for Economic Policy Analysis, The New School, 2012). For a proposal with low-risk investment options,
see Alicia Munnell, Andrew Eschtruth, and Charles Ellis, Falling Short: The Coming Retirement Crisis and What to Do about It (New York, NY: Oxford University Press, 2014), 118–120.
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© 2016 Christian E. Weller
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Weller, C.E. (2016). The Pitfalls of Employer-Sponsored Retirement. In: Retirement on the Rocks. Palgrave Macmillan, New York. https://doi.org/10.1057/9781137575142_8
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DOI: https://doi.org/10.1057/9781137575142_8
Publisher Name: Palgrave Macmillan, New York
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