I still don’t know why this line of research didn’t go further but its important to remember that privatizing the retirement system doesn’t do anything stop mal-effects of a generational bulge.
Rather than government budget problems, you simply have the problem that lots of people are trying to buy stocks at the same time, driving the price up and then on the back end lots of people are trying to sell stocks at the same time, driving the price down.
I think that sometimes lay people get confused and think that a private retirement system implies that people will only be paying in and thus adding to the capital stock. They forget that on the opposite end people will be extracting and thus depleting the capital stock.
The “investment bonus” is only the time between when the money goes in and when it comes out. I wish I could go into more detail, but you actually get the exact same effect from a Social Security trust fund. Less borrowing by the government – and hence a higher capital stock – when money is going in. More borrowing by the government – and hence a lower capital stock – when money is going out.
Altering retirement plans from a claim on the future earnings of labor (Social Security) to a claim on the future earnings of capital (401k) does nothing to change this basic dynamic