NCPA - National Center for Policy Analysis


April 6, 2005

Voluntary personal retirement accounts are good for younger workers and good for Social Security, says Allan B. Hubbard, assistant to the president for Economic Policy and director of the National Economic Council.

Why voluntary personal retirement accounts benefit younger workers:

  • By allowing workers to put up to four percentage points of their payroll taxes in a personal retirement account, the individual gets a real "trust fund" with his or her own name on it that is saved for retirement; with the current system, all Social Security surpluses are spent by Washington politicians on other government programs.
  • Any portion of the account not used during retirement can be left to heirs; and in the unfortunate event an individual dies before reaching retirement, the account can be passed to surviving loved ones, many of whom would otherwise receive nothing under the current Social Security system.
  • If an average-wage worker making $35,000 a year were allowed to take 4 percent of his or her payroll taxes and set it aside in a personal retirement account, starting at age 21, then when he or she retired that nest egg would be worth nearly $250,000.
  • Low wage workers live paycheck to paycheck; voluntary personal retirement accounts are the only way they can build a nest egg for retirement and their future.

Personal accounts do involve a transition -- a transition to a more transparent, more honest system of accounting for Social Security. And, more importantly, by providing ownership, control and the opportunity to save and invest, they lead to a more secure retirement for America's workers, explains Hubbard.

Source: Allan B. Hubbard, "Voluntary, Secure, Solvent," Wall Street Journal, April 6, 2005.

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