Asset allocation under partial and complete privatization of social security contributions

Social Security reform has focused on allowing individuals to choose where to invest a portion of their retirement contributions as a means of avoiding insolvency of the retirement system. Chilean reforms in the early 1980s have demonstrated, at least for a developing and immature stock market, that privatization can be an effective way to increase returns on retirement savings. Mature security markets in the United States provide a large variety of potential investments that appear to be attractive alternatives to the Social Security trust fund's implied rate return of 2.3%. These returns have a zero variance, which still makes them a good choice when compared to more volatile alternatives in the event of full or partial privatization of Social Security contributions assuming assets are allocated according to mean variance efficiency analysis.