We revisit the role of social security in countering inadequate saving for retirement. We compute the optimal social security tax rate for households who lack the computational ability to solve dynamic optimization problems. Instead, they follow the simple rule of thumb of consuming and saving a...

While standard models assume households have no trouble planning for retirement, some researchers have argued that households vary in their propensity to plan and that the degree of retirement planning is a key determinant of household saving (Lusardi and Mitchell 2007). As a result, there is...

Unfunded public pension systems are primarily justified on grounds that many individuals lack sufficient capacity to appropriately save for retirement. We begin with a review of the known principle that a standard life-cycle/permanent-income consumer who discounts the future at an exponential...

We present a rule-of-thumb consumption model with participation in a Save More Tomorrow (SMarT) plan, and we analytically derive the fraction of life-cycle wage increases that must be saved to offset a reduction in social security benefits resulting from an aging population (holding taxes fixed...

A potential role of social security is to protect individuals who have accumulated little or no assets for retirement. Yet, this type of social safety net could reduce human capital formation by making the life-cycle financial rewards from education less attractive. For example, social security...

We study the optimal provision of social security in a dynamically efficient economy using a continuous-time overlapping-generations model in which consumers have short planning horizons. The short-horizon mechanism leads to dynamic optimization that is time-inconsistent over the life cycle. Our...