The President’s proposal to allow workers to invest part of their Social Security tax in personal accounts is currently a subject of considerable debate.

Much of the opposition to personal accounts is due to a lack of information. The facts show that such accounts would provide workers of all ages and income levels a far better retirement than does the present system.

As matters now stand, almost all the Social Security tax paid by today’s workers and their employers is used to fund the benefits of those who are now retired. When today’s workers retire, their benefits will (hopefully) be paid by the workers who come after them.

Contrary to what some have been led to believe, the system has been funded in this manner ever since it was created in the 1930s. Not a penny of anyone’s Social Security tax has ever been set aside in their name.

The so-called Social Security Trust Fund is not really a trust fund, and represent only a very small percentage of the future obligations of the system.

In 1950 there were 16 workers to pay the benefits of each retired person. Due to the fact that the average life-span is longer and the birth rate is lower, there are now only a little over three workers per retiree. Forecasts are that several years from now there will be only two workers to support each retired person.

Social Security officials forecast that by 2018, only 13 years from now, the taxes will not be enough to cover the benefits. In another few years, the so-called Trust Fund will be depleted.

If the present system is not changed, the only options will be to significantly raise Social Security taxes, reduce benefits, or some combination of both.

If personal accounts were implemented, the Social Security tax a worker and his employer paid in would be set aside in his or her name. The money would be invested in stocks or bonds and increase in value over time. Upon retirement, workers would keep all the money in their account.

If a worker died before reaching retirement age, the money in his or her personal account would be part of the estate and be paid to the heirs. Under the present system, if a worker dies before retirement age and does not have a surviving spouse or minor children, the family does not receive a penny from the Social Security taxes he has paid in over the years.

A portion of the Social Security tax funds disability payments. Under the President’s proposal, this part of the system would not be changed.

The information in the chart below is from the Social Security Calculator on the web site of the Heritage Foundation (www.heritage.org, then click research/features/social security calculator). Users of the Calculator can enter any age and income level and compare estimated Social Security benefits and the value of personal accounts invested in any combination of stocks and bonds.

For example, a 30-year old male worker currently earning $20,000 per year will pay $165,726 in Social Security taxes and receive a retirement benefit of $1,544 per month. That money invested in a stock fund with an average 7% yield would grow in value to $756,000 by retirement age, enough to purchase a lifetime annuity of $6,162 per month. If the money were put in government bonds earning only 3 per cent, the worker would retire with a monthly benefit of $2,425.

We keyed over 20 different age and income level, both for men and women, into the Calculator. In every case, personal accounts provided a better retirement than did the present system.

The only downside to personal accounts is the added up-front cost of making the transition. Social Security taxes paid into personal accounts would not be available to pay the benefits of current retirees. To lessen this cost, the President has proposed a gradual transition, with only part of one’s tax set aside in personal accounts the first few years.