What Does It Cost To Guarantee Returns?

Source: Alicia H. Munnell, Alex Golub-Sass, Richard A. Kopcke, and Anthony Webb, Center for Retirement Research at Boston College, Issue in Brief, IB# 9-4, February 2009

The brief’s key findings are:

– The financial crisis suggests the need for a new universal tier of retirement saving accounts to supplement Social Security and 401(k)s.
– To prevent large drops in asset values and fluctuations in replacement rates, policymakers might find it desirable to provide guarantees.
– But low guarantees would have had no effect historically.
– And finance theory says that high guarantees are prohibitively expensive.
– The only way to provide high guarantees is if the government were willing and able to bear more risk than other investors.

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