Faculty Scholarship 1994 - Present

Reducing the Downside Risk of Not Receiving Anticipated Social Security Benefits by Using Personal Accounts (previously presented at Eastern Finance Association & Teaching and Learning Conference)

The government is not obligated to pay Social Security benefits and no one has the right to receive such benefits. As ruled by the Supreme Court and demonstrated by a long history of benefit reductions, Social Security benefits are not and cannot be guaranteed. The optional personal accounts (also termed private accounts) associated with the proposed partial privatization of Social Security involve significant risk. The same is true for traditional Social Security; benefits are not guaranteed. When considering the proposed personal accounts, one important issue is if their use will likely increase or decrease the risk of receiving lower than anticipated Social Security retirement benefits. This paper presents the argument that opting for a personal account in conjunction with traditional Social Security is less risky than opting to have all of one's Social Security taxes go into traditional Social Security. The overall downside risk of receiving lower than anticipated Social Security retirement income is reduced by diversifying to include personal accounts along with traditional Social Security.