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Social Security Privatization and the Annuities Market [i] (February 1998)

handle is hein.congrec/cbo06373 and id is 1 raw text is: SOCIAL SECURITY PRIVATIZATION AND THE ANNUITIES MARKET February 1998 PREFACE in anticipation of the retirement of the baby-boom generation, policymakers have been analyzing the financial pressures on Social Security and devising new ways Americans could prepare for retirement. Those proposals--loosely called privatization--would prefund retirement income in personal accounts that workers could invest in the financial market and then spend down during retirement. This Congressional Budget Office (CBO) paper discusses the importance of private annuities markets for the payout phase of personal retirement accounts, focusing on the interaction between regulatory design and market performance. It also describes current annuities markets and the reasons for market inefficiencies and contrasts annuities with Social Security's protection against longevity risk. Jan Walliser of CBO's Macroeconomic Analysis Division wrote the paper under the supervision of Robert Dennis and Douglas Hamilton. Among colleagues at CBO, Robert Arnold, Arlene Holen, Tim Lasocki, Joyce Manchester, Paul Menchik, Benjamin Page, Kent Smetters, John Sturrock, and David Torregrosa all made important comments. Outside CBO, Moshe Arye Milevsky of York University, Canada, and Mark J. Warshawsky of TIAA-CREF made valuable comments and suggestions. The views expressed in this paper do not necessarily reflect those of the reviewers or their affiliations. Melissa Burman edited the paper, and Leah Mazade provided editorial assistance. Verlinda Lewis Harris prepared the manuscript for publication. Laurie Brown prepared the electronic version for CBO's World Wide Web site (http://www.cbo.gov/). June E. O'Neill Director February 1998 CONTENTS SUMMARY AND INTRODUCTION THE CURRENT STATE OF THE MARKET FOR PRIVATE ANNUITIES * A Classification of Individual Annuities * Why Is the Market for Single-Premium Immediate Life Annuities Small?

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