Are Retirement Savings Accounts a “Risky Scheme”?
President Bush, most Republicans and some Democrats have called for a gradual transition from the current pay-as-you-go Social Security system to one centered around pre-funded accounts. Although polls show that the American public supports such a transition, recent stock market volatility has led PRA opponents to call them a “risky scheme.”13 That’s because virtually all plans to shift to PRAs are based on the IRA model which gives workers and retirees some discretion in how their retirement funds are invested. [See Figure 1.] Figure 1 Although some PRA proposals would allow workers and seniors to make specific decisions about which stocks, bonds, mutual or index funds to invest in, others would restrict investment options to certain approved fund managers who would invest in broad-based index funds. But up until now, virtually all proposals for shifting Social Security to a system of Personal Retirement Accounts have assumed some form of direct market investment. The Market Isn’t Ris
