(1994). Douglas Bernheim (1993) has examined the adequacy of private saving among prime-age workers. Both sets of authors demonstrate that the retirement income stool could be quite wobbly by the time the baby boom generation reaches retirement. Schieber and Shoven point out that the value of pension assets may fall sharply when a large generation of new retirees attempts to convert financial market assets into retirement consumption. Bernheim argues that, even if asset values were to be secure, the current saving rate of baby boom workers would be grossly inadequate to ensure them a comfortable standard of living after they retire.

All three pillars of the retirement income system are influenced by public policy. Social Security is a creation of the federal government. Private pension plans are heavily regulated by federal legislation and regulatory agencies. Public employee pension plans have been established and continue to be maintained by federal, state, and local government officials. Nonpension household saving is influenced by tax policy as well as by public regulation of the institutions that hold the bulk of nonpension financial assets. If the future income flows from these retirement income sources seem less secure than they once did, part of the explanation may be that defective laws or poor public regulation have undermined the safety of the system. A simpler explanation, of course, is that the long-term economic outlook has worsened, leaving Americans with less confidence in the future than they had 20 years ago. Even if public policies were optimal, young and middle-aged workers would feel greater anxiety about their prospects for enjoying a comfortable retirement.

How realistic are the fears of current workers? Is it likely that the Social Security system will default on promised benefits within the life spans of people who are now contributing to the system? Will private pensions and nonpension savings be adequate to finance comfortable retirement consumption in the next century? The federal government regularly publishes a document that helps answer these questions—the Annual Report of the Social Security trustees (see Social Security Administration, 1994). This report offers detailed forecasts of the future financial operations of the Social Security Trust Fund under alternative assumptions about trends in the economy and the future size and age distribution of the population. Though the reports contain clear evidence that Social Security and Medicare are not sustainable under current law and using plausible assumptions about the future, they provide little guidance about the size or timing of the benefit cuts that would be needed to protect the solvency of the programs. In addition, they shed no light on the financial prospects of the employer pension system, nor do they evaluate current saving patterns of active workers in relation to sensible retirement income goals. Readers of the reports are correct to feel anxious about the sustainability of Social Security and Medicare under present law. But they are given little information to decide how the programs should be changed or whether greater reliance on private retirement income would improve workers' prospects for a safe income in old age.

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