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tially revised if the goal of adequate income security is to continue to be met in this century. Some of the challenges to the current systems stem from the demographic forces discussed in Chapter 2. First, the large baby boom cohorts born after World War II in various countries will be entering their retirement years during the first few decades of the 21st century. Issues associated with the sheer size of these cohorts are compounded by large increases in older-age life expectancy throughout Asia, Europe, and North America, which now face the new demographic reality of a constantly declining ratio of workers to retirees. This new demography implies that the financial costs of maintaining the existing income benefits of the old pay-as-you-go public-tier systems are not sustainable.

The major domestic political challenge of the 21st century concerns how countries will adapt their old-age income security and health insurance systems to meet this challenge. In this chapter we do not advocate any particular system over others. However, one option that most countries are likely to consider involves relying on individual private savings and wealth accumulation to offset any reductions that may take place in the level of public-tier support. How realistic is it to assume that individuals will save sufficiently over their lifetime to contribute significantly to their own income needs during retirement? To answer this question, one must first understand the basic motivations for household wealth accumulation. Why do some households save so little while others—even those with similar incomes—appear to accumulate so much wealth? Do individuals save primarily to leave bequests to their heirs; to reconcile differences in the timing of income and consumption over the life cycle; or to insure against future uncertainty regarding income, unemployment, or health? What role do financial inheritances play in perpetuating wealth inequalities across generations? These are basic and important research questions that require good theoretical and empirical scholarship, as well as high-quality data on household savings and wealth.

A central question regarding income security for the aged is whether individuals and families will assume greater responsibility for their own retirement if current government programs are scaled back because of budgetary pressures. In particular, will households accumulate more private wealth during their working years to finance their retirement years? A promising research strategy for answering this question is based on international comparisons. As suggested above, there is a great deal of variation in the way different countries finance the retirement of their older populations, placing differing weights on publicly provided pensions, private or employer-provided pensions, and private savings. For example, as a general rule the countries of continental Europe place much more emphasis than the United States on income security through a public-tier system. Yet some European countries rely almost exclusively on



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