Bush created the Commission to Strengthen Social Security amid conerns that the US Social Security system would run out of money by the time current baby boomers are ready to retire. Commission members didn’t illustrate how the benefits would be cut.
According to the Associated Press, the first option creates a voluntary personal account, but does not make other benefit or revenue changes. Specifically, the first option would:
- allow workers to invest 2% of their payroll taxes in personal accounts
- reduce benefits by the personal account’s total value, compounded at a 3.5% annual interest rate
- not solve the program’s future funding problems.
Meanwhile, the commission said its second alternative would give retirees as much as they would get if they retired today. It would:
- allow workers to invest up to 4% of their payroll taxes in a personal account, up to $1,000.
- reduce benefits for retirees by the total value of the personal account, compounded at a 2% interest rate.
- change the benefit’s calculation by tying it to price inflation instead of a recipients’ wage growth starting in 2009. That means benefit checks would grow more slowly.
- require government funding of $1.3 billion to $71 billion.
Finally, the third option would give future retirees more than they would get by retiring now, the report said. It would:
- require workers to save 1% of annual income to qualify for a personal investment account. There would be a 2.5% government match, up to $1,000.
- subsidize low-income contributions by a refundable tax credit
- cut current benefits by the total value of the personal account, compounded at an annual interest rate of 2.5%.
Social Security is expected to start paying out more in benefits than it takes in from payroll taxes by 2016 because of the retiring baby boom generation.