Simplicity Is the Key to Social Security Reform

Australia has repeatedly been cited as an example of a retirement savings system done right, with American policy makers attempting to integrate ideas from the country into our own ailing system. Now, Larry Kotlikoff is pointing to another Pacific Rim country for ideas on Social Security reform-New Zealand.

Kotlikoff, who rose to prominence giving Social Security tips on PBS, insists that the inherent complexity of the Social Security system is one of the main obstacles to its success. Retirees in America are often unsure of how much money they can actually expect in benefits, as all of the various rules and exceptions involved can be difficult for the average person to calculate, much less understand. This uncertainty leads to errors in saving behavior, where workers expect more in benefits than they will actually receive, and so do not put enough money away to ensure a comfortable retirement.

In speaking of alternatives to so complex and uncertain a system, Kotlikoff offers the following as a counterexample.:

It’s New Zealand, which features a very stable democracy with a social security system that has only one rule (ours has thousands). Their rule is this: When you reach 65, you receive the same amount in benefits as everyone else 65 and older who enjoys the same marital status and living arrangement.

A simplification of America’s Social Security program could be a major factor in ensuring its solvency and increasing retirement security and certainty for the retiring Baby Boomer generation.

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