But this outcome would require a sudden and fundamental change in investors' behavior. After a century of demanding a 7 percent average annual return from stocks, Mueller predicts Americans will settle for a 4.7 percent return. This assumption, of course, drastically reduces the expected returns from personal retirement accounts. The report makes an unsupported adjustment for risk. Mueller uses a curious measurement of investment risk to reduce the expected average earnings of both stocks and Social Security benefits.
Risk is an important concern, and it is legitimate to include an adjustment.
But Mueller's is excessive. Investments for retirement usually are held for more than 20 years. The report selects an unreasonable transition plan. The Mueller report also overstates the transition costs of moving to a system of personal retirement accounts. It ignores many of the proposed plans and instead uses a contrived example that is unrealistic and improbable.