John Y. Campbell, Director of the NBER Program on Asset Pricing, and NBER President Martin S. Feldstein, both of Harvard University, organized a project on Risk Aspects of Investment-based Social Security Reform. The results of the project were discussed at a conference held on January 15-16. The papers produced in the project and the conference discussants were:
Marianne Baxter and Robert G. King, NBER and University of Virginia, "The Role of International Investment in a Privatized Social Security System"
Discussant: David Backus, NBER and New York University
Henning Bohn, University of California, Santa Barbara, "Social Security and Demographic Uncertainty: The Risk-Sharing Properties of Alternative Policies" (NBER Working Paper No. 7030)
Discussant: Kevin M. Murphy, NBER and University of Chicago
John McHale, Harvard University, "The Risk of Social Security Benefit Rule Changes: Some International Evidence" (NBER Working Paper No. 7031)
Discussant: David A. Wise, NBER and Harvard University
Martin S. Feldstein; Elena Ranguelova, Harvard University; and Andrew A. Samwick, NBER and Dartmouth College, "Portfolio Risk in the Transition to Investment-based Social Security" (NBER Working Paper No. 7016)
Discussant: Robert J. Shiller, NBER and Yale University
Antonio Rangel, Stanford University, and Richard J. Zeckhauser, NBER and Harvard University, "Can Market and Voting Institutions Generate Optimal Intergenerational Risk Sharing?" (NBER Working Paper No. 6949)
Discussant: Thomas J. Sargent, NBER and Stanford University
Andrew B. Abel, NBER and University of Pennsylvania, "The Social Security Trust Fund, the Riskless Investment Rate, and Capital Accumulation" (NBER Working Paper No. 6991)
Discussant: Deborah J. Lucas, NBER and Northwestern University
Kent Smetters, University of Pennsylvania, "Arbitrage Pricing of Unfunded Benefit Guarantees: Rationale and Computations"
Discussant: David Wilcox, U.S. Treasury
Zvi Bodie, Boston University, "Financial Engineering and Social Security Reform"
Discussant: Stephen Ross, NBER and MIT
Jeffrey Brown, MIT; Olivia S. Mitchell, NBER and University of Pennsylvania; and James M. Poterba, NBER and MIT, "The Role of Real Annuities and Indexed Bonds in a Mandatory Annuitization System" (NBER Working Paper No. 7005)
Discussant: Mark Warshawsky, TIAA-CREF
John Y. Campbell; and Joao Cocco, Francisco Gomes, and Pascal Maenhout, Harvard University. "Investing Retirement Wealth: A Life Cycle Model" (NBER Working Paper No. 7029)
Discussant: Amir Yaron, University of Pennsylvania
Thomas E. MaCurdy and John B. Shoven, NBER and Stanford University, "Asset Allocation and Risk Allocation: Can Social Security Improve Its Future Solvency Problem by Investing in Private Securities?" (NBER Working Paper No. 7015)
Discussant: Stephen P. Zeldes, NBER and Columbia University
International investment of retirement savings in an investment-based Social Security system could yield important benefits to U.S. citizens. To gauge the potential magnitude of these benefits, Baxter and Ring contrast the current Social Security system with alternative private investment vehicles - specifically, variable rate annuities. Within a private retirement account, standard portfolio analysis suggests benefits from an internationally diversified portfolio equal to a 20 to 40 percent increase in wealth at the retirement date. Much larger hedging benefits could be obtained by switching from domestic to foreign assets in private retirement accounts accruing before the retirement date, as individuals accumulate retirement wealth during their working life. The extent of these benefits depends on the magnitude of the co-movements of asset returns and labor incomes and requires a detailed analysis of life cycle saving decisions. …