Brickbats blur Bush proposal for Social Security

• Article
• Comments ()
• Click-2-Listen
• Videos

By

President Bush's Social Security reform proposal to let workers invest some of their payroll taxes in stocks and bonds would dramatically change the way millions of Americans prepare for their retirement, but the complex details of how his sweeping plan would work have been obscured by the furious political battle it has ignited.

Mr. Bush's personal retirement account (PRA) plan has been attacked by the AARP as a high-risk gamble, which the politically powerful retiree lobby compares to playing the slot machines, even though one of the few investment choices the plan would allow is what Social Security invests in now -- U.S. Treasury bonds.

Democrats in Congress have charged that the proposal would result in retirement benefit cuts of more than 40 percent and say that the system "is just fine" for the next 50 years, while the program's trustees say it is headed for bankruptcy if nothing is done to change it.

"This willful misunderstanding of the operation of personal accounts is dishonest and obscures the truth," Heritage Foundation analysts David C. John and Keith Miller said in a memo released after Mr. Bush's State of the Union address.

"While inaction will lead to automatic cuts in Social Security benefits, personal accounts could allow Social Security to pay what it has promised," they said.

Doing nothing, most independent analysts think, is far riskier to the solvency of the Social Security system and its beneficiaries. Without any changes to its financial structure, government trustees say it will need an infusion of $27 trillion through 2079 to finance future benefits for millions of additional retirees.

Here's how the program would work:

Workers younger than 55 would be allowed to voluntarily invest up to 4 percent of their income in a small number of government-approved stocks and bonds, or a mixture of the two to minimize risk. It would be modeled after the government's Thrift Savings Plan, which allows federal employees to invest in a choice of five stock and bond funds to supplement their federal pensions.

Despite charges by critics that the accounts would mean cuts in benefits, retirees and those who are 55 or older would not be affected by Mr. Bush's plan. They would receive their full benefits under the existing system.

Younger workers who want a PRA would be gradually phased into the program over three years, according to their age, with the oldest going first.