If you were born in 1949 or before, you would not be impacted by any of the changes envisioned by the President for Social Security. You would not have any changes to your benefits; you would also not be participating in personal accounts.
For individuals who were born in 1950 or later, they would have the opportunity – the voluntary opportunity – to participate in personal accounts. If they wished, they could not choose a personal account and they could stay entirely within the current system. […]
Specifically, the investment options that individuals would have would be somewhat similar to the thrift savings plan. In the thrift savings plan, individuals are given presently a choice of five funds. […]
Participants would not be permitted, under the system, to have pre-retirement access to their personal accounts. […]
Upon retirement, upon reaching retirement age, there would be some limitations on how they could withdraw money from the accounts. If an individual had a personal account balance, if they had chosen to take a personal account, they would not be able to withdraw money from their account to such a degree that by doing so they would move themselves below the poverty line. In other words, there would have to be a sufficient amount coming to them, in terms of a monthly inflation index benefit stream, from the traditional system and the annuitized portion of their personal account to be able to fund a poverty-level benefit. […]
The size of the personal accounts would be limited to 4 percent of a worker’s wages from their payroll taxes. But there would be a cap placed on the accounts in the first year – contributions to the accounts of $1,000. Now, each year that cap thereafter would rise in increments of $100 on top of the natural wage growth that drives the growth in payroll taxes. […]
[T]he personal accounts, as we would structure them, would not create a net new cost for the system. To the extent that people put money in these accounts and invest in these accounts, there would be a corresponding reduction in the government’s liabilities from the Social Security system that is equal in present value to the money placed in the personal accounts up front. So in a long-term sense, the personal accounts would have a net neutral effect on the fiscal situation of the Social Security and on the federal government. […]
In the near-term, however, of course, there will be transition financing required. Our estimate of the total amount of transition financing for the accounts, according to the schedule that I’ve outlined before, is about $664 billion through the end of the budget window of 2015. If you assume that – debt service effects on top of that, that would be another $90 billion. […]
*n return for the opportunity to get the benefits from the personal account, the person foregoes a certain amount of benefits from the traditional system.
Now, the way that election is structured, the person comes out ahead if their personal account exceeds a 3 percent real rate of return, which is the rate of return that the trust fund bonds receive. So, basically, the net effect on an individual’s benefits would be zero if his personal account earned a 3 percent real rate of return. […]
But at death, what happens to the annuity? Does it go to the federal government?
The annuity part would not come back, obviously, but the rest could be inherited.