March 30, 2005
Should Social Security be reformed with personal accounts?
YES
If we don't fix Social Security, our children will pay the price—literally. Consider my daughter. At 18, she has just started nursing school and plans a career working with sick children. Retirement is the last thing on her mind, but what we do about Social Security will profoundly affect her future.
In 2018, when my daughter is 31, Social Security will start spending more in benefits each year than it takes in from payroll taxes. From then until 2042, it can pay benefits by cashing in the federal bonds in its trust fund. But once those bonds are gone, benefits would have to be cut. So when my daughter reaches retirement, she will get only about 70 percent of the benefits she's been promised. Fixing Social Security today, and adding private accounts, can give my daughter the same sort of retirement security her parents and grandparents have. A personal retirement account would earn higher returns than the government-run system, and allow her higher retirement benefits without higher taxes. She wouldn't need to make risky investments: By investing part of her Social Security taxes in government bonds, she could have twice the benefits she's now promised.
Most workers could do even better. The mix of investments suggested in the President's plan would probably yield about 4.6 percent annually-about 50 percent more than would be earned by government bonds alone.
All parents want to leave a better world for their children. Fixing Social Security and adding personal accounts will help make that happen. David John is a senior research fellow for Social Security at the Heritage Foundation. First appeared in Upfront magazine
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