Social Security Reform: Can It Secure The Rights To Your Pension Benefits?

Social Security has been an extremely popular program over its 70 years of existence. It has provided retirement, life insurance and disability benefits to workers and their families. Through the years, benefits have been expanded and adjusted, new groups of workers have been covered, and taxes have been raised on workers and some retirees to pay for the program’s costs. As the program’s costs grew, so did its revenue base, as members of the Baby Boom generation matured and reached their peak annual earnings. For the past 20 years, Social Security payroll tax revenues have been in excess of its benefit payments, providing revenues to the Treasury to fund other programs. The program’s surpluses are expected to end in 2017. In all future years, its costs, in the form of benefit payments will exceed its dedicated tax revenues and the gap between cost and revenues is expected to grow each year into the indefinite future. Anyone looking to providing for the continuation of Social Security must deal with this growing funding gap. The projected funding gap is not an illusion made up by those who favor one type of reform over another, but a real gap that must and will be dealt with by the present or some future Congress. The Social Security reform debate is really about how to close this gap – essentially how to provide retirement benefits to current retirees as they age and how to provide benefits to new retirees in the very near future. But how future benefits are funded, say through future tax increases or through additional savings today, determines who bears the burden of closing the funding gap and when that burden is borne. Most reformers have as their goal the provision of benefits comparable to the benefits that are currently scheduled. In the present paper I would like to explore how personal retirement accounts provide one avenue to achieving reform.