Social Security Reform: How Much of a Role Could Personal Retirement Accounts Play? Page: 4 of 18
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Social Security Reform:
How Much of a Role Could
Personal Retirement Accounts Play?'
In response to repeated reports that the Social Security system has long-range
funding problems,2 and growing public skepticism about whether the system can be
sustained in its current form, numerous proposals have called for the creation of
personal retirement savings accounts to replace or supplement the benefits of future
Social Security recipients. Among the proposals are ones suggested by Presidents
Clinton and George W. Bush. Also, all three options proposed by President Bush's
Commission to Strengthen Social Security feature individual accounts.
The Social Security taxes workers pay flow into the government's general
treasury and are recorded as income to the Social Security trust funds. They are not
accredited to individual taxpayers to accumulate and later be used to pay for the
individual's benefits. Instead, most of the Social Security taxes paid by current
workers pay for the benefits of current retirees, and future workers will pay for the
benefits of future retirees. Some proponents of establishing personal accounts
believe that a better way for workers to secure their retirement income would be to
have them accumulate assets through investment of their individual contributions.
Others propose personal accounts as a way to offset cuts in Social Security benefits
that might be made in order to restore the system to sound financial footing.
Much of the support for creating personal accounts is fueled by the perception
that, per dollar of contributions, their accumulated assets would exceed the value of
future Social Security benefits, particularly if future Social Security benefits are
curtailed. As the financing demands of paying benefits to future retirees rise, the
pressure will grow on future Congresses to consider scaling them back. Proponents
of creating personal accounts argue that such accounts would establish contractually
binding claims for future retirees (i.e., not alterable by Congress) and that the stock
market potentially could bring much greater returns than are possible from the current
Social Security system.
This is a revision of a report originally created by former CRS analyst David Koitz
2Under the Social Security Trustees' 2002 intermediate forecast, Social Security is projected
to have an average 75-year deficit equal to 1.87% of taxable payroll under current law. This
amount is equal to about 14% of the average income of the system over the period. In terms
of today's taxable payroll, this would be equivalent to $80 billion per year.
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Social Security Reform: How Much of a Role Could Personal Retirement Accounts Play?, report, May 15, 2002; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc808488/m1/4/: accessed May 23, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.