Welcome to "Ask the White House" -- an online interactive forum where you can submit questions to Administration officials and friends of the White House. Visit the "Ask the White House" archives to read other discussions with White House officials.
April 29, 2005
I am pleased to be with you this afternoon to answer your questions about the President's proposals for strengthening Social Security and offering voluntary personal accounts for younger workers. As you may know, Social Security is sound for today's seniors, but it faces financial problems that will lead to bankruptcy if we fail to act. I hope that my responses are helpful in explaining how the President proposal would strengthen and save Social Security for future generations.
Susanna, from Germantown TN
As you know, the President believes very strongly that any comprehensive reform package should give younger workers the option of putting a portion of their payroll taxes in a voluntary personal retirement account that they own and control. The President believes that younger workers should have the opportunity to earn a higher rate of return on their Social Security dollars than the current system can provide. The President is committed and will continue to work with Congress in a bipartisan way to find a solution that strengthens Social Security for future generations. The President has said he wants to get a bill this year.
please, respond at your earlier convenience. I need it for my Budgeting class
Hope this helps. Good luck with your budgeting class.
Leonard, from Tempe, AZ
Thank you, Leonard
Thanks for your question.
Personal accounts are essential to fulfill Social Securitys promises for younger workers. Under current law, by the time you reach the normal retirement age of 67 in the year 2049, Social Securitys trust fund will already have been bankrupt for 8 years. Under current law, your benefits, and those of other retirees, will be reduced by over one-quarter, and the reductions will increase with each passing year.
President Bush wants to strengthen Social Security by making it permanently solvent and, at the same time, make it a better deal for younger workers. President Bush proposes that you have the option to invest up to a third of your Social Security taxes 4 percentage points out of the 12.4 percent total tax in a voluntary personal retirement account. This is money you earn that you could save in an account that you own, rather than sending it to Uncle Sam. You could invest the money in your voluntary personal retirement account in a small selection of simple, low cost bond and stock mutual funds and would have the opportunity to get a higher rate of return on these dollars than you would get if you left the money in the current Social Security system. At retirement, the account would help pay part of your Social Security benefits.
And given a conservative investment portfolio of half bonds, half stocks, you could expect that by age 67 your account would be worth over $210,000, in todays dollars. Thats a real nest-egg of savings that the current system doesnt provide.
Daniel, from Lakeville, CT
You raise a good question. As you know, the Social Security system is funded by the payroll tax and the payroll tax is applied to the first $90,000 of income. This is what you refer to as the $90,000 cap on income.
The President has asked Congress to bring all ideas to the table so that we can have an open and honest discussion about the best way to solve the Social Security problem. The President is open to all ideas that would help strengthen Social Security permanently, except raising the payroll tax rate (currently 12.4%) which would hurt the economy and American workers. Some have suggested raising the income cap and that idea is on the table, but raising the cap alone wont solve the systems financial troubles. In fact, even if we completely eliminated the income cap and applied the payroll tax to ALL income, it would only delay the problem by 6 years. Social Security would still go into the red before you retire. The President wants to fix Social Security once and for all so that the system is there for you when you retire.
Keep up your interest in politics and the economy.
Jon, from Avon, CT
Many students are shocked when they receive their first paycheck from a summer or after-school job. They see a good chunk of their pay going to something called FICA technically, the Federal Insurance Contribution Act which really means the taxes you pay to Social Security. At your age, you probably dont feel like youll ever see that money again, particularly with the financial troubles facing Social Security.
One of the great things about the Presidents plan for voluntary personal accounts for Social Security is that you could see your savings building from your very first job. You could invest up to 4 percent of your wages in an account, and would receive quarterly statements showing how much youve built up. (Since you are clearly tech-savvy, you could also go on the Internet to check things out.) Even if you worked 10 hours per week at only the minimum wage, by the time you graduated high school you could have over $500 saved in your personal retirement account. By the end of college, you could have over $1,200.
This does two great things. First, it restores young peoples faith in Social Security. Many kids dont ever expect to see a Social Security check; but when you see that money in your account, you know that Social Security will be there for you. And second, it gives kids experience with saving and investing, which will help them in all areas of their life later on. Many Americans dont save enough, and with personal accounts younger Americans can get a head-start on a really good habit.
Have fun this summer!
ursula, from long beach, ca writes:
thanks, ursula williams secureourfuture.org
Thanks for your question. As you point out, the voluntary personal retirement accounts the President has proposed would allow younger workers to build a nestegg for retirement that they own and control. Voluntary personal retirement accounts would also give you the opportunity to get a better rate of return than the current system can provide. For younger workers, the current system will provide a rate of return of less than 2% on the dollars they contribute to the system. The Social Security actuaries predict that a personal retirement account invested in a conservative mix of bonds and stocks will give you average return of 4.6%. If you earned the average wage and contributed 4% to a voluntary personal retirement account over your entire life, you would have about a quarter of a million dollars in todays dollars when you retire.
The investment options for the voluntary person retirement accounts would be structured similar to the retirement program know as the Thrift Savings Plan that is currently offered to all Federal employees including members of Congress. The program would be simple and easy to understand. You could choose from a small number of conservative bond and stock index funds. In addition, you would have the option of a lifecycle fund, which would automatically shift your investments from stocks to more secure bonds as you approached retirement to guard against market swings on the eve of your retirement. Workers who have reservations about investing in the markets could choose to invest in U.S. Treasury bonds, which have no risk.
Hope that helps.
Ashley, from Detroit, Michigan
Thank you for your time. And thanks for answering questions
You are referring to the Thrift Savings Program, which is a retirement program offered to employees of the Federal government. You may have heard the President reference the TSP program as a good model to use for the investment choices we would provide for his proposed voluntary personal retirement accounts.
Your sister owns her Thrift Savings Program (TSP) account. If she leaves the government, it goes with her. She can either leave her account invested through the Thrift Savings Program or roll it over into an individual retirement account with a bank she chooses. The money in the account is there for her retirement and there are restrictions in the TSP program about early withdrawals.
Matt, from Chicao writes:
What an exciting time to be graduating from college and just starting out. It is wise for you to begin thinking about your retirement now so that you get the benefits of long-term investing. You should talk to your new employer about the retirement plans they offer. If they offer a 401(k) retirement plan, I would encourage you to start participating early.
The President wants to help make your retirement more secure as well. That is why he is talking to the American people about the financial troubles facing Social Security and urging Congress to act now to fix Social Security once and for all, rather than passing on the problems to your generation. He believes that voluntary personal retirement accounts will help make Social Security a better deal for younger workers by offering them ownership, control and the opportunity to early a higher rate of return than the current system can afford to pay.
Good luck with your new job and congratulations on your graduation.
Will, from Houston, Texas writes:
You are correct on all accounts. Your generation has the most to gain from personal retirement accounts and the most to lose under the current system if we do not act to fix the systems finances. And, under the Presidents proposal, personal retirement accounts would be VOLUNTARY. No one would be forced to take a personal retirement account. You could elect to stay in the reformed Social Security system or choose to put a portion of your payroll takes (up to 4 percentage points of the 12.4% tax) in a personal retirement account that you own and control.
Bojie, from Arizona writes:
Thanking you in advance, Bojie
You raise important questions. First, the Social Security system is currently funded by the payroll tax which is currently 12.4% of your wages, subject to the wage cap. The President has proposed allowing younger workers to take up to 4 percentage points of the 12.4% they currently pay in payroll taxes and put it in a voluntary personal retirement account. This is money you earn that you are currently paying to Uncle Sam. Rather than pay it to Uncle Sam, you would elect to put it in a voluntary personal retirement account that you own and control to help build a nestegg for your retirement.
Second, you could invest your personal retirement account in a small number of conservative bond and stock index funds, including a lifecycle fund that would automatically shift from investments in stocks to investments in more secure bonds as you get closer to retirement to guard against the risk associated with a market crash on the eve of retirement. For those who have reservations about investing in the markets at all, there would also be an option to invest in U.S. Treasury bonds, which are risk free. This option would allow you to get the same return you would have gotten had you left your money in the current system but you would own the account, unlike under the current system.
Brian, from Norfolk writes: