FIXING SOCIAL SECURITY

February 2005
		President Bush has launched a national campaign to generate support for his plans to reshape Social Security, including the controversial option of personal investment accounts for younger workers. Peter Orszag, senior fellow in economic studies at the Brookings Institution, and Michael Tanner, director of health and welfare studies at the Cato Institute, answer your questions about the voluntary personal accounts and other aspects of the president's plan. Special Report: Social Security Reform

Forum Introduction What are President Bush's plans for Social Security disability? Didn't Great Britain undertake the personal accounts experiment with their version of Social Security to detrimental results? How do the personal accounts affect employers' contributions to Social Security? How would removing the $90,000 income limit on Social Security taxes affect the system's future? What happens if a person's private account runs out? How will the average person who knows nothing about investing fare under President Bush's new plan? How does the federal Thrift Savings Plan differ from Social Security? Under the personal accounts proposal, will there be fees for investing, and who and how will they be paid? If the IOUs in the Social Security trust fund were paid, would the system remain solvent for a much longer time? Why would anyone want to change Social Security, an insurance program, into a savings account? I'm 48, how drastic are my benefit cuts going to be?	Ken Galal of San Francisco, Calif., asks: Two questions: 1. Will employers still be required to contribute the same amount as they currently do? 2. What happens if a person's private account runs out? Does Social Security kick back in for those living to 90 or 100 years old? Michael Tanner responds: Employers would continue to contribute to social Security exactly as they do now. One way to look at is that the 4 percent contribution would most likely be handled as 2 percent by the employee and 2 percent by the employer, though in purely economic terms it makes no difference. Your employer currently makes a lump sum payment combining both portions. That combined payment would simply have 4 percent redirected to your account. Peter Orszag responds: 1. Yes. 2. Unfortunately, the person would be in trouble -- Social Security would not "kick back in." One of the principal benefits of Social Security is that it lasts as long as you're alive. Under the Administration's proposal, part of the individual account may have to be transformed into a product (called a life annuity) that also lasts as long as you're alive. But for the part of an account that is not turned into a life annuity -- which is the only part that could provide a bequest, by the way - workers face the substantial risk of outliving their assets. For more discussion of this crucial issue, see the recent panel report from the National Academy of Social Insurance (I was one of the panel members; the panel included people who supported accounts within Social Security and others who did not support such accounts). The report is available at: http://www.nasi.org/publications2763/publications_show.htm?doc_id=212927.