Stumping for Social Security
From Kathleen Hays
NEW YORK (CNN) -- The hard sell has begun, as President Bush takes to the road to champion the centerpiece of his State of the Union address.
"It's a novel way of saying to young workers, we understand whose money we are spending, and two, we want you to be able to have more security in your retirement and that is to allow younger workers to take some of their own payroll taxes and set aside in what is called a personal retirement account," Bush said Thursday.
The White House is providing some details of a concept the president has championed for years:
The plan would not affect people 55 and older.
Right now workers pay a payroll tax of 12.4 percent for Social Security, half of which comes from the employer. Under the new plan, younger workers could choose to divert a third to a private investment account.
Only a limited menu of federally approved, relatively conservative, stock and bond funds would be allowed.
Supporters say the biggest plus is the chance to ride the stock market higher and earn better returns than the government would earn on the same Social Security money.
"Over time, you're going to get somewhere between 5 percent and 8 percent compared to the little over 1 percent that Social Security gets. The real key here is to give our young people who don't believe there will be any Social Security there for them to give them a chance to be able to save for their own retirement," Sen. Orrin Hatch, R-Utah, says.
One of the biggest objections raised over personal accounts is that stock market investments are risky, that's why the returns are higher.
Wall Street brokerage firm Goldman Sachs says retiring at the wrong point in the stock market's recent cycle could have cut the returns for personal account holders by more than one third.
And personal accounts would take a lot of money out of the benefit pool -- the White House puts that amount at $800 billion over 10 years; others say the trust fund would be out more than $2 trillion.
"The fact is though," says Sen. Jon Corzine, D-New Jersey, "those are still going to have to get funded. It's going to pull financial resources out of the Social Security trust fund that are not going to be available for guaranteed benefits."
No matter how personal accounts perform, they don't solve the basic funding problem of Social Security. Benefits are growing over time as more people retire and there are not as many younger workers to pay taxes that fund benefits for retirees.