February
15, 2005
The right
reform
By Paul Ryan
Today's Congress has the best opportunity
in years to put Social Security on sound financial footing while giving
workers access to a better rate of return on their investment. This can
and will be done without changing benefits whatsoever for those 55 and
older.
By giving younger
workers the option of putting a significant part of their wages — say,
6% on average — into personal accounts they own and investing in a
secure, government-approved retirement fund, we can eliminate long-term
Social Security deficits.
In fact, personal
accounts help reduce the need to cut future benefits or raise taxes to
restore solvency to Social Security. And the larger the personal accounts,
the less Washington will have to resort to such steps. This is because,
over time, sizable accounts cover more of the program's benefit
obligations, as future retirees draw on the savings and interest that have
accumulated in their personal accounts for their retirement. (Contrast
this with the current system, where retirees rely on current workers'
payroll taxes.)
Evaluating legislation
I introduced last year, the chief actuary of Social Security determined
that large accounts would even erase Social Security's $10.4 trillion
unfunded liability — what the program promises today's workers but
cannot pay. To deal with the "transition costs" of diverting
money into private accounts, we should make offsetting cuts in other
government spending.
Not only are personal
accounts crucial to sustaining Social Security for future generations,
they also deliver a much better return on workers' investment. Currently,
Social Security delivers a below-market return of 1.5% for beneficiaries.
When my children retire, they will receive a negative rate of return. On
the other hand, the Thrift Savings Plan — the retirement savings plan
that serves federal employees and members of Congress — consistently
delivers returns ranging between 4% and 11%, depending on the investment
fund chosen. President Bush has mentioned this plan as a model for
personal accounts.
In addition to better
benefits, personal accounts offer workers the chance to amass savings in
accounts they own and can pass on to their spouse, children or other
heirs.
With large personal
accounts as the lynchpin of reform, Congress can help future generations
build a more prosperous and secure retirement through Social Security,
maintain the program's safety net and ensure that seniors and those
approaching retirement receive promised benefits.
Rep. Paul Ryan, R-Wis.,
is a member of the House Social Security subcommittee. |