Social Security and Private Savings: Complementary Roles

Social Security Brief No. 29 ~ September 2008

Summary: Retirement policy debates often pit Social Security against private savings. Advocates of private savings often suggest that personal accounts are superior to Social Security and should replace the current retirement benefit program. Nearly all retirement policy experts agree, however, that both Social Security and private savings are needed for a financially safe and secure retirement.

This brief explains the complementary roles of Social Security and voluntary personal savings. Social Security is insurance against the vagaries of retirement (including income-eroding inflation in old age), disability, and the death of a family worker. As insurance, it is about community: everyone shares the risks; and benefits go to those who experience insured losses. Savings, in contrast, are liquid assets that can generally be spent for any purpose at any time.

The brief also lays out arguments for two proposals by the Aspen Institute Initiative on Financial Security to encourage retirement savings and help retirees turn their savings into lifetime income. America’s IRA would be available to any worker without a pension plan at work. It would look just like any other IRA but include federal matching contributions to encourage participation and help boost retirement savings by low- and moderate-income workers. Security Plus Annuities would make it easier for all Americans to use their savings to buy more Social Security-like income through the federal government.