Retirement Income Guarantees Are Expensive

摘要

Traditional def ined-benef it pension plans depend on funding by employers to preserve the security of their income guarantees. The U.S. Social Security system depends on demographic stability. In both cases, security has proven to be elusive. In neither case does one find contingency reserves created in good times to help sustain security in bad times. Instead, society turns to defined-contribution arrangements, thereby throwing the risk onto individuals. Individuals have their own problems to cope with, however, involving uncertainty of both longevity and investment returns. The unsurprising lesson overall is: Eliminating risk is expensive.