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Social Security

What's wrong with Social Security and can we fix it?

And what does President Bush propose we do to fix it? Sorting things out.

By HELEN HUNTLEY
Published February 4, 2005

SOCIAL SECURITY What's wrong? Can we fix it? As words change, so does public opinion Proposal comes with more risk, more chance of reward Editorial: Details, details

Graphics The uncertainty Small changes count Weighing consequences

Times poll Is President Bush's Social Security plan now clear? Yes. I now support it Yes. I now am against it No. But I'm willing to hear more No. I still don't see what's broken

President Bush is calling for significant changes in the way our country's Social Security system operates. The most striking is creating the option of private savings accounts for workers born in 1950 or later. There is no detailed plan in place, but the basics of the president's concept have been released by the White House. Keep in mind that it is likely Congress would make significant changes to what the president is proposing before adopting any Social Security overhaul.

What's the potential benefit of having one of these private accounts?

Primarily, the opportunity to earn a better return on your money. If your investment choices do well, you may end up with a larger retirement income than you would have had otherwise. In addition, your beneficiaries would be able to inherit what's left in your account at your death, if anything.

What would I give up?

Your regular Social Security benefit would be reduced if you chose a private account, although Bush has not said how much of a reduction he has in mind. In addition, you would take the risk of ending up worse off in retirement if your investments do poorly.

When could I open a private account?

In 2009 if you were born between 1950 and 1965, in 2010 if you were born between 1966 and 1978 and in 2011 if you were born in 1979 or later. You would not be eligible if you were born before 1950.

How much could I put in my account?

Initially, 4 percent of your wages, up to $1,000 a year. After that, the maximum contribution would increase by $100 a year plus an adjustment for inflation. The money would come from the payroll taxes you already pay.

How would my money be invested?

You would choose from a small number of options similar to mutual funds, with varying levels of risk. Private money managers under contract with the government would do the investing, buying and selling stocks and bonds. The government would handle the administration.

Could I get my money out in an emergency?

Not before retirement.

What happens when I retire?

Most likely, you would not be able to take a lump sum payment out of your savings account. Instead, you would be required to put at least part of that money into an annuity that would make regular disbursements to you for life. The government wants to be sure your combined income, including Social Security and the annuity payments, is at or above the poverty level, which currently is $9,310 for an individual and $12,490 for a couple. Any extra money beyond what's needed to purchase the annuity could be withdrawn or left to your beneficiaries.

What happens if there isn't enough money in my account to buy the annuity?

Presumably you'd simply have less income. At this point there is no plan for bailing out retirees whose investments perform poorly.

What happens if I don't choose a private account?

You would stay in the regular Social Security program. However, Bush has acknowledged that benefit reductions are a possibility for those who choose not to participate in private accounts. He has only promised that benefits would not be reduced for those now 55 and older.

Would private accounts solve Social Security's financial problems?

Not initially. In fact, they would make them worse for a time since part of the payroll tax would no longer be available to pay current benefits because it would instead be going into private account investments. The idea is that in the long run, the financial strain would be eased as workers with private accounts retire with reduced benefits. But during the transition period, the government would have to come up with trillions of dollars. Unless taxes are increased, that money would have to be borrowed.

What happens to disability benefits and survivors' benefits?

The president hasn't said.

Information from Times wire services was used in this report.

[Last modified February 4, 2005, 06:37:29]