NCPA - National Center for Policy Analysis

Personal Savings Accounts Could Avert Disaster

August 27, 2003

Personal Savings Accounts could help save Social Security without curtailing benefits to retirees, raising taxes or burdening the government with unsustainable debt, says Pete du Pont.

First, the government would guarantee existing Social Security benefits to everyone who chose to participate in the new PSA system, with no increase in the retirement age.

Second, two percentage points of every participating worker's current payroll tax would be used to fund an individually owned market account:

  • The funds in these PSAs would be invested every year in a balanced portfolio, approximately 70 percent stocks and 30 percent bonds.
  • Workers would choose among a variety of investment funds, which would be government certified and required to maintain balanced portfolios.
  • One would come from their PSA and the second from the government.
  • The second check would be calibrated to ensure everyone received the total benefit amount they would've gotten under the old Social Security system.
  • PSA returns would vary over time depending on market performance, but the government's check would always bring the total amount received up to the guaranteed Social Security benefit.

Possibly the most important benefit of PSAs -- spouses, children or other dependants would inherit a family member's PSA assets whenever he dies (be it before or after retirement). This solution would guarantee retirement benefits, which Social Security does not.

Source: Pete du Pont, "Over the Cliff: Social Security is about to plunge, but retirement benefits don't have to,", July 21, 2003.

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