Q&A: The great Social Security debate

And even if established this year, the accounts would be phased in over a long period. The White House foresees them beginning in 2009, for workers who are today between 40 and 55 years of age. In 2010, workers who are now between 27 and 55 would be eligible. In 2011, everyone under 55 could establish a private account, if they wanted.

Contribution levels would similarly be phased in. The administration envisions a cap on initial accounts of $1,000. This cap would rise by at least $100 each year thereafter, up to a maximum of one-third of a worker's Social Security tax.

A: Probably not. Although the White House has not offered a detailed menu of options, collectible baseball cards, precious metals, and can't-miss stocks suggested by brothers-in-law would be unlikely to be approved.

Instead, officials have compared possible investments to those available to federal employees under their thrift savings plan - a choice of five or so mutual funds, ranging from international stocks, to blue-chip US equities, and corporate or Treasury bond funds.

A life-cycle fund would also be a likely choice. These are funds in which the percentage of an individual's investment devoted to stocks automatically declines as they near retirement. This would be a means of locking in any gains, and guarding against losses from market volatility.

A: No. Under the White House plan, participants would not be allowed preretirement access to their money - nor would they be permitted to make loans to themselves through the accounts, or borrow against them.

There would be at least one important restriction on how the money can be used after participants reach retirement, as well. According to the White House, individuals would not be permitted to withdraw money from their personal account if it would plunge them below the poverty line.

If a worker's payment from traditional Social Security was not by itself large enough to keep them out of poverty, the government would require them to use some portion of their personal account money to buy an annuity - an investment with a fixed monthly payout for life.

You can't pass most annuities along to your heirs, so to some extent this would reduce the amount of freedom that lower-income workers would have in terms of personal account distribution.

With this exception, retirees would be free to use the cash in their personal accounts as they saw fit. They could leave it alone, so it would continue to appreciate. They could withdraw it as a lump sum to meet some pressing need. Or they could pass it along to heirs as an inheritance.

A: Yes. That would be only fair - workers with private accounts would be diverting some of their tax money away from traditional Social Security, so when time came for retirement they should get less out.

The thing to remember is the investment benchmark: 3 percent. Under Bush's plan, the bean-counters at Social Security would assume that payroll tax money paid into the traditional system earns 3 percent interest per year. So when the time came to figure a retiree's benefit, they would deduct the money diverted into the private account, plus the figured interest.

The bottom line of the Bush plan: If you opt for a private account, and over the course of your working life it earns more than 3 percent per year, on average, you come out ahead. If not, you'd have been better off putting all your payroll tax money in the traditional system.

[Editor's note: Peter Grier's byline was missing on the original version.]

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