The Consumption and Portfolio Choice Implications of Social Security Policy Risk
(Extraordinarily
Preliminary … Honest … I’m Not Kidding)
Abstract
We
examine the optimal consumption/savings and portfolio allocation responses of
investors of different ages and different wealth and earnings profiles to
alternative policy choices for resolving the social security system solvency
problem. These policies changes include: cutting benefits across the board,
raising labor income tax rates across the board, eliminating the annual social
security earnings cap (without an offsetting benefit increase), and a
wealth-based means test for receiving social security retirement benefits. We
find …