The Pitfalls of Employer-Sponsored Retirement
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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.
KeywordsRetirement Plan Retirement Saving Employer Contribution Private Sector Wage High Risk Tolerance
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- 3.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.Google Scholar
- 23.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,Google Scholar
- 24.Christian Weller, “Making Sure Money Is Available When We Need It” (Washington, DC: Center for American Progress, March 2013);Google Scholar
- 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).Google Scholar
- 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,Google Scholar
- 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.Google Scholar