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The retirement squeeze: How would they fix it?

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He has long proposed that workers be able to divert some of their Social Security payroll taxes into voluntary personal retirement accounts (PRAs). Those who opt for this approach would get smaller government checks when they retire - but the difference would be more than made up by returns from their private accounts, which they could invest in stocks or bonds as they see fit, thus earning higher returns on their money. That's the theory, anyway.

These accounts would allow workers to immediately own a portion of their Social Security. That's an idea that's appealing to younger voters, say some experts, especially in light of today's dire talk about Social Security's finances.

"PRAs can give workers a much more secure retirement income than the current Social Security system," says Mr. John.

Shortly after taking office, Bush convened a Social Security commission, which produced three different plans for implementation of personal retirement accounts. Bush politely thanked them, but didn't endorse any of their choices. Nor has he provided any more details about his Social Security plans, other than to say that the benefits of current retirees and near-retirees will be protected.

Critics say the reason for the president's reticence is obvious: Implementation of partial privatization of Social Security would be very expensive. It might be difficult to build political support at a time of burgeoning deficits and rising national-security spending.

Consider the problem: When baby boomers begin retiring in large numbers, relatively fewer and fewer workers will be supporting a growing population of retirees. Now there are roughly 3.3 workers paying taxes for each Social Security recipient drawing benefits. By 2030 this support ratio will fall to 2.2.

Today Social Security is in surplus. But in 2018 it will probably pass break-even and dive into the red. Instead of subsidizing other spending in the federal budget, as it does now, it will begin eating up general revenue at the rate of an extra $45 billion every year.

"We have promised more than our economy has the ability to deliver to retirees," said Federal Reserve Chairman Alan Greenspan in an Aug. 27 speech.

In the short run, say critics, private accounts could well make this problem worse, as they would siphon off a share of much-needed revenue. Estimates of the cost of a transition to partial privatization run from $500 million to $2 trillion over 10 years.

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