The Evidence:How Personal Accounts Save Social Security

These two simple charts–based on the analysis of the chief actuary of the Social Security Administration–should define any discussion of the fiscal impact of reforming Social Security.

The top chart shows that, without reform, the current Social Security system will create massive federal deficits beginning in 2018. There are three ways to avoid these deficits: 1) Raise taxes, 2) cut benefits, or 3) let workers create personal retirement accounts with a portion of their payroll tax and then use these personally owned accounts to fund their own retirements.

The bottom chart shows what the chief actuary determined would happen if the Ryan-Sununu Social Security reform bill were made law: Instead of generating deficits in the future, Social Security would generate surpluses.

Under Ryan-Sununu, workers would be allowed to put 6.4 points of their total 12.4% Social Security tax into a personal retirement account. At the end of his career, the worker would use funds in the personal account to buy an annuity that would pay him the equivalent of a Social Security benefit. If a worker has more funds than needed to buy such an annuity, he can keep the surplus. If a worker has insufficient funds to buy such an annuity, the government would make up the difference.