NCPA - National Center for Policy Analysis


November 15, 2004

Will "add-on" personal accounts solve Social Security's $11 trillion long term debt? Add-on accounts, often referred to as "Social Security Plus," would create a federally-run 401(k) or IRA program on top of Social Security. Workers would have the opportunity to set aside some money from their paycheck each month in addition to what they already pay into the Social Security system.

While any measure to encourage personal savings is good, there are two big problems with this proposal as it relates to Social Security reform, says Matt Moore, a senior policy analyst with the National Center for Policy Analysis:

  • American workers already have access to retirement savings accounts in the form of 401(k)s and IRAs; Social Security Plus would federalize a program that is already available and flourishing in the private market.
  • Add-on accounts do nothing to solve the Social Security's funding problems: Creating savings accounts outside the program will not reduce Social Security's $11 trillion debt by one penny; this approach would still lead to a 50 percent increase in taxes, benefit cuts of up to a third or an increase in the national debt of tens of trillions of dollars.

The President's personal retirement account approach will have a positive impact. President Bush's personal retirement accounts solve Social Security's long-term debt while add-on accounts do not. Integrated accounts replace part of the government/taxpayer-funded benefits. Over time, this saves the government a considerable sum of money and eliminates the $11 trillion debt, all while paying combined benefits that are greater than the current Social Security program can afford, explains Moore.

Source: Matt Moore, "AARP: Wrong on Social Security Reform; Add-on Accounts will not Help Social Security," National Center for Policy Analysis, November 12, 2004.

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