Reexamining the Three-Legged Stool
David M. Cutler
THE PAST SIXTY YEARS have witnessed dramatic improvements in the living standards of the elderly. In the 1930s the Great Depression destroyed jobs and life savings. Thirty years ago the elderly were not starving, but one-third of them were still in poverty. Today the elderly are perhaps the best-off group in society. This improvement in income has been built on expansions in all three legs of the "three-legged stool" of retirement income support--Social Security, employer-provided pensions, and individual savings.
And yet even though retirement income support is seemingly guaranteed, new questions loom. The first question is about the strength of the different legs--which should be more important and which less? The continuing Social Security trust fund imbalance, for example, has sparked a debate about how important Social Security should be relative to private sources of savings. In addition, the change in employer pensions from plans that guarantee retirement income (defined benefit pensions) to those that guarantee only a rate of contributions (defined contribution pensions) has led many to fear that retirement income is becoming less certain. For both of these issues, evaluating the right mix among the sources of retirement income is essential.
The second question is whether individuals are saving enough for retirement from all three sources combined. A common fear is that many people do not save enough for retirement and that if public policy does not encourage saving now, these people will have to be supported later.
To address these two questions about retirement income support, this chapter compares Social Security, employer pensions, and individual savings in____________________
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Publication information: Book title: Social Security:What Role for the Future?. Contributors: Peter A. Diamond - Editor, David C. Lindeman - Editor, Howard Young - Editor. Publisher: National Academy of Social Insurance. Place of publication: Washington, DC. Publication year: 1996. Page number: 125.