A COMPARISON OF RELATIVE RATES OF RETURN ON PRIVATE AND PUBLIC PENSION FUNDS.

摘要

The purpose of this paper is to provide an analysis of the relative performance of a private and a public plan. Using a sample of faculty of Clark University, a systematic analysis of the Social Security benefits and TIAA/CREF lead us to conclude that the benefits associated with Social Security have a much higher replacement ration than TIAA/CREF.;After the Automatic Adjustment Act of 1972, the Social Security, provided individual retirees with an inflation proof benefit whereas the benefits of the private plans have been very sensitive to price changes. The private plans offer individuals a fixed stream of income which is quite vulnerable to inflation. Hence, in recent years people have been heavily relying on the Social Security benefits. Since the Social Security is currently facing a serious financial strain, a number of recommendations have been made to improve the benefit structure of the private plans in order to alleviate some of these difficulties.;Another important issue that is in mind of anyone saving for retirement years especially those employees of colleges and universities, etc. is the risk associated in making these savings. During the past twenty five years the TIAA has had a very moderate return with a low degree of variation. In contrast to this CREF has had a high mean return with a very large variance. The question is whether one should go after a high return or low risk. This, of course, depends on the individual, whether risk lover, risk neutral or risk avertor. A theoretical model has been constructed to examine this question and offer the most efficient portfolio.;Finally, after estimating the rates of return for TIAA and CREF for future, a measure of efficiency called "replacement ratio" was constructed and used to evaluate the performance of these plans as well as Social Security. The findings of this paper show that the Social Security currently provides individuals with a much higher replacement ration than TIAA/CREF, and the fact that its benefits are inflation proof suggests that the future of the private plans depends on their ability to protect retirees from inflation.;The Social Security system initially was designed to provide individuals a retirement benefit floor rather than an income replacement, it now figures more prominently than private plans in total retirement income.