Aiming for a Solvent Social Security
July 23, 2006 (WA). “The President will insist on maintaining the long-term solvency of the Social Security System, so that it can continue to provide benefits to retirees in the future.” The President’s economic advisers are one in insisting that any Social Security legislation must include provision to the program’s long-term financial problems.
This is significant considering that House Republican leaders have sided with conservatives who say Congress should settle for a subtle plan to establish private investment accounts financed from Social Security’s cash surplus. Under the said program, Legislators would drop efforts to close the gap between compromised future benefits and anticipated tax revenue by cutting benefits or raising taxes.
The President is committed in achieving two goals. First, is to restore the solvency of the Social Security System and the other is to create a personal retirement account for individuals. Under the president’s personal accounts plan, a retiree’s defined Social Security benefits would be reduced by a dollar for every dollar contributed to an account. This is exclusive of an interest rate of 3 percent above inflation. This so-called “offset rate” was set to equal the amount the Social Security would have received if the money in the accounts had instead gone to Social Security and been invested in Treasury bonds.
In consonance with this plan, the workers who choose personal accounts would get more benefits than they would from the traditional system, but this would only be true if their account investments returned gains higher than 3 percent above inflation, which seems to be a tough standard to hurdle. Economist opined that with real interest rates quite low, the offset rate may unduly penalize personal accounts and there might be a need to determine whether the offset rate should be adjusted to market levels.