Order Code 98-195 EPW
CRS Report for Congress
Received through the CRS Web
Social Security Reform: How Much of a Role
Could Personal Retirement Accounts Play?
Updated June 9, 2000
David Stuart Koitz
Specialist in Social Legislation
Education and Public Welfare Division
Congressional Research Service ˜ The Library of Congress

Social Security Reform: How Much of a Role Could
Personal Retirement Accounts Play?
Summary
Numerous proposals have been suggested calling for creation of personal
retirement accounts to replace or supplement the benefits of future Social Security
recipients. Some are based on the belief that having workers accumulate assets
directly would be a better way to secure future retirement incomes. Others are
designed to offset Social Security benefit cuts that may be needed to restore the
system to a sound financial footing. Much of the debate is fueled by the perception
that, per dollar of contributions, personal accounts invested in the private sector
would exceed the value of future Social Security benefits, particularly since those
benefits will likely need to be curtailed as post-World War II baby boomers retire.
Opponents of personal accounts point to projections of the Social Security
trustees, which assume much slower future economic growth than achieved over the
past 50 years. They contend that a slower growing economy means a less robust
stock market and less favorable results for personal accounts. They argue that many
individuals will make unwise investment decisions, the timing of their acquisitions and
liquidations may be bad, and they may spend what they otherwise should save.
Given these contrasting assertions, there is considerable confusion over how to
evaluate the possible role of personal accounts in reforming Social Security. Certainly
the political, economic and social effects will drive the debate. But how much people
could expect to accumulate in them relative to any potential Social Security changes
will be critical. This report attempts to add some facts to the debate by projecting
potential personal account assets at the time of retirement and comparing them to
projected lifetime Social Security benefits.
Notable among its findings is that, even under the optimistic investment scenario
projected here (a 10% annual return), the oldest baby boomers would not have
enough time to build large accounts relative to their Social Security benefits. Workers
with average earnings who set aside 3% of pay beginning in the year 2000 and retire
at age 65 in 2010 would have an account equal to only 7% of their benefits. Even
workers retiring in 2020 would have built only modest accounts — at best, with a 3%
set-aside, they would equal 19% of their benefits. Thus, the more rapid the phase-in
to a constrained or alternative Social Security system, the more difficult it would be
for many baby boomers to make up for foregone Social Security benefits.
The accounts become more significant for workers retiring in 2030 since they
would have had 30 years to build them. A 3% of pay set-aside earning 10% annually
could reach a level equal to 41% of an average-wage earner’s Social Security benefits.
Even with a return only matching the government bond rate (assumed to be 6.4%
annually), a 3% set-aside could grow to a level equal to 23% of benefits. For workers
retiring in 2050, having 44 years to invest, the accounts would become quite large.
A 3% set-aside growing at the government bond rate would reach a level equal to
40% of Social Security benefits; a 3% set-aside with a 10% annual return would reach
a level equal to 101% of Social Security benefits.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Where Would the Money Come From to Build Personal Accounts? . . . . . . 2
Factors Determining How Much Could be Accumulated . . . . . . . . . . . . . . 5
(1) How much could be deposited into new personal accounts? . . . . . 5
(2) How long could the accounts be assumed to grow? . . . . . . . . . . . 6
(3) How large could the rates of return be? . . . . . . . . . . . . . . . . . . . . . 6
Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The baby boomers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The baby troughers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
The children of the baby boomers (the baby-boom echo) . . . . . . . . . 11
Effect of delaying retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Effect of accumulating personal accounts on the low-wage “tilt” of the
Social Security system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
The impact of a full career’s worth of personal account building . . . . 15
For Additional Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
List of Tables
Table 1. Alternative Rates of Return Assumed in this Report . . . . . . . . . . . . . . 7
Table 2. Value of Personal Accounts As Percent of Current Law Social
Security Benefits for Average-Wage Earners Retiring in the Period From 2010 to
2050 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Table 3. Value of Personal Accounts As Percent of Current Law Social Security
Benefits for Average-Wage Earners — Illustrations of Impact of Delaying
Retirement From Age 65 to Age 70 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Table 4. Value of Personal Accounts As Percent of Current Law Social Security
Benefits — Differences Between Minimum, Average, and High-Wage
Earners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Table 5. Varying Amounts by Which a Personal Account Could Mitigate a
Hypothetical 16% Social Security Cut For Workers Retiring at Age 65 in 2030
— Assuming Personal Account Funded With a 2% of Pay Set Aside, Earning
6.4%a Per Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Table 6. Varying Amounts by Which a Personal Account Could Exceed a
Hypothetical 16% Social Security Cut For Workers Retiring at Age 65 in 2030
— Assuming Personal Account Funded With a 2% of Pay Set Aside, Earning
10% Per Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Table 7. Value of Personal Accounts As Percent of Current Law Social Security
Benefits — Illustrations of a “Full” Career’s Worth of Contributions . . . . 16
Table 8. Projected Social Security Benefits and Accumulations in a Personal Savings
Account (in nominal dollars) — Retirement at AGE 65, with 1% Set Aside
During Working Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Table 9. Projected Social Security Benefits and Accumulations in a Personal Savings
Account (in nominal dollars) — Retirement at AGE 65, with 2% Set Aside
During Working Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Table 10. Projected Social Security Benefits and Accumulations in a Personal
Savings Account (in nominal dollars) — Retirement at AGE 65, with 3% Set
Aside During Working Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Table 11. Projections of Personal Account Accumulations As Percent of Social
Security Benefits — Retirement at AGE 65 . . . . . . . . . . . . . . . . . . . . . . . 22


Social Security Reform: How Much of a Role
Could Personal Retirement Accounts Play?
Introduction
In response to repeated reports that the Social Security system has long-range
funding problems and growing public skepticism that the system can be sustained in
its current form, numerous proposals have emerged calling for the creation of
personal retirement savings accounts to replace or supplement the benefits of future
Social Security recipients. Among them are proposals suggested by President Clinton
and Presidential candidate George W. Bush.
The Social Security taxes people now pay flow into the government’s general
treasury and are recorded as income to two federal trust funds. As such, they help to
finance the system as a whole. They are not accumulated nor accounted for taxpayer-
by-taxpayer and have only an indirect bearing upon the determination of a person’s
benefits. Instead, Social Security benefits are based on an average of a person’s
earnings history. The principle under which the program functions is that today’s
workers pay for the benefits of today’s retirees, and future workers will pay for the
benefits of future retirees. Some proponents of establishing personal accounts believe
that having workers accumulate assets through investment of their individual
contributions would be a better way for them to secure their retirement income.
Others see the creation of personal accounts as a way to offset future cuts in Social
Security benefits that may be needed to restore the system to sound financial footing.
Much of the support for creating personal accounts is fueled by the perception
that, per dollar of contributions, the asset accumulation in them could exceed the
value of future Social Security benefits, particularly since Social Security benefits will
likely be curtailed by future changes in the law. As the financing demands of paying
federal entitlement benefits to the post-World War II baby boomers rise, the pressure
on future Congresses to scale them back will grow. Proponents of creating personal
accounts argue that such accounts would establish contractually binding claims for
future retirees (i.e., not alterable by Congress) and that the stock market potentially
could bring much greater returns than are possible from Social Security.
Opponents of the idea say that the past performance of the stock market is
unlikely to be repeated in the future. They point to the long-range projections of the
Social Security trustees, which assume much slower future growth in the nation’s
Gross Domestic Product than achieved over the past 50 years (that being the possible
result of slower population growth).1 They contend that a slower growing economy
1 Under the Social Security trustees’ 2000 intermediate (or “best guess”) financial forecast,
Gross Domestic Product (GDP) is projected to grow at annual inflation-adjusted rates
(continued...)

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means a less robust stock market and less favorable results for personal accounts.
Moreover, they argue that many individuals will make unwise investment decisions,
the timing of their acquisitions and liquidations may be bad, and they may spend what
they should save. They argue that Social Security is a better mechanism to assure
workers’ future retirement income and to minimize “old age dependency” for society
as a whole.
This report does not take a side on the issue, nor is its purpose to promote or
dismiss the concept of personal savings accounts. Rather, its purpose is to illustrate
potential accumulations in personal savings accounts, given a range of possible
contribution amounts and interest rates. Amidst often contrasting and contradictory
assertions, there is considerable confusion over how to evaluate the possible role of
personal accounts in the debate on Social Security reform. This report is designed to
be used as a tool in that debate. Its illustrations do not simulate the effect of any
single idea or bill. To the extent that a bill proposes Social Security benefit reductions
alongside the creation of personal accounts, those reductions would be an equally
important factor in evaluating the full impact of the bill. The possible social effects
of changes in the Social Security program, as well as potential effects on the
economy, the nation’s ability to save, the federal budget, and the financing of the
system are paramount. However, at the root of any change is the question of how it
could affect each worker’s future retirement income. Simply stated, if personal
accounts are part of (or comprise the entirety of) a Social Security reform plan, what
“range” of retirement benefits might one expect to earn from them?2
Where Would the Money Come From to Build Personal Accounts?
Perhaps the most significant policy question about establishing personal accounts
in the context of Social Security reform is how to fund them. Thus far, three generic
approaches have been suggested: (1) carving out a portion of existing Social Security
taxes, (2) withholding more from workers’ earnings (a so-called “add on” approach),
or (3) using projected federal budget surpluses.
1 (...continued)
dropping from 3.5% in 2000 to 2.1% in 2010 and to ultimate rates of 1.7% to 1.5% for the
2020 and later period. Over the past 50 years, “real” or inflation-adjusted GDP has grown
at average annual rates exceeding 3%. For more information, see: The 2000 Annual Report
of the Board of Trustees of the Old Age, Survivors and Disability Insurance Trust Funds,
Washington, U.S. Government Printing Office, 2000.
2 This report looks only at the question of how personal accounts might replace or supplant
Social Security retirement benefits, not its survivor or disability benefits. It deals with the
question of how effective alternative means of accumulating resources for retirement might
be. While a number of recent proposals would create personal accounts to replace or
supplement all forms of Social Security benefits, others are directed exclusively toward the
system’s retirement benefits. The nature of the system’s protections vary — receipt of
retirement benefits is viewed as something for which people plan and accumulate assets,
whereas disability and survivor protection is viewed as dealing with the “risks” of losing one’s
ability to work or the earnings of a spouse or parent. It is something for which people buy
insurance.
How private insurance could replace or supplement these Social Security
protections is certainly relevant but raises different types of policy and operational questions.

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The “carve out” approach: 12.4% of a worker’s first $76,200 in annual
earnings in 2000 is paid in taxes by employees and employers (6.2% by each) to
finance the Social Security system.3 In recent years, the most prominent approach
suggested to setting up personal accounts would be to require or allow workers to
use part of these taxes to do so. Although not yet proposing or endorsing a specific
plan, Presidential candidate George W. Bush has stated that he favors such an
approach, one that would be voluntary in nature. The concept was earlier
incorporated in one of three alternative plans proffered by the 1994-96 Advisory
Council on Social Security.4 Its sponsors proposed that 5% of pay be carved out of
the Social Security tax rate (i.e., 5 percentage points of the tax rate) for the creation
of “Personal Security Accounts” (or PSAs).5 It also is reflected in a number of bills
introduced in the 105th and 106th Congresses, ranging from a one percentage point
carve out under H.R. 250 (introduced by Representative Sanford) to a 10 percentage
point carve out under H.R. 874 (introduced by Representative Porter).
Obviously, if it is projected that the taxes that finance the system are insufficient
to pay for future promised benefits, earmarking some of them for the buildup of
personal accounts would make this shortfall larger.6 It would mean that to restore the
system to solvency, future tax increases would have to be larger, or benefits would
have to be cut deeper. Some proposals address this issue by asking workers to forego
or forfeit a part of their Social Security benefits in exchange for the option to build
3 An estimated 94% of workers have earnings below the $76,200 threshold; thus, most
workers pay the Social Security tax on all of their earnings. Another 2.9% tax rate (1.45%
on employee and employer, each) is levied on all earnings (i.e., there is no maximum) to help
finance the Medicare Hospital Insurance (HI) trust fund. The combined Social Security and
Medicare tax rate that the vast majority of workers and employers pay on all their earnings
is 15.3%.
4 The council was a legislatively mandated body whose primary purpose was to make
recommendations to resolve Social Security’s long-range financing problem. Its report was
issued in January 1997. (See CRS Report 97-81, Social Security: Recommendations of the
1994-1996 Advisory Council on Social Security,
by Geoffrey Kollmann).
5 Supported by five of the 13 members of the council, this plan (sometimes referred to as the
Schieber/Weaver plan, named for two of its authors, Sylvester Schieber and Carolyn Weaver)
also would have increased FICA taxes on workers by 1.52% of pay for 72 years. Hence, it
represented a combination of a “carve out” and “add on” approach — on balance the net carve
out was to be about 3.5% of pay. The plan also envisioned converting the traditional
government-run program into a system that bases benefits on the length of a person’s work
record, as well as making other changes to restore the program’s long-run solvency. The
authors contended that the combination of benefits from the new personal accounts (the PSAs)
and the scaled-down government system would equal or possibly exceed the benefits payable
from the current Social Security system (i.e., assuming the current system were able to pay
the benefits prescribed under the benefit computation rules of current law).
6 Under the Social Security trustees’ 2000 intermediate forecast, the Social Security system
is projected to have an average 75-year deficit equal to 1.89% of taxable payroll under current
law. This amount is equal to about 14% of the average income of the system over the period.
In terms of today’s taxable payroll, this would be equivalent to $75 billion per year. An
immediate and permanent carve out of 2% of earnings, for example, would approximately
double the size of the long-range deficit.

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personal accounts, the premise being that the larger the amount of taxes they divert,
the greater the forfeiture of benefits. In effect, the burden of reduction is placed on
those who have made the greatest use of the carve out. The goal of these proposals
is not to make the current system’s problems worse, but to replace it. With these
measures, the key problem is financing the existing Social Security system during the
first few decades of the transition. The larger the amount of foregone tax revenues,
the less money there is to meet current expenditures. The commitments to people
currently receiving benefits or nearing retirement would have to be met, so to some
extent the amount of the potential tax carve out is constrained, at least in the early
years of such a proposal, by the need to keep the existing system going.
Withholding more from earnings — the “add on” approach: Some have
suggested that instead of carving out funds for personal accounts from existing Social
Security taxes, today’s workers could be asked to set aside an additional part of their
incomes to build them. One faction of the recent advisory council suggested that an
additional 1.6% of pay be mandatorily set aside for such.7 The motive here is not to
replace the existing system but to offset some of the benefit reductions that may be
needed to restore its solvency with accumulations of private assets.
Earmarking budget surpluses: A third possibility would be to have the
government use surplus federal revenues to make deposits into new personal
accounts. This approach would envision neither a tax carve out nor an additional
amount of withholding from wages, but would be contingent upon budget surpluses
not being used for other politically popular purposes (i.e., new spending initiatives,
lower taxes, or debt reduction). Such an approach was proposed by President Clinton
in his January 1999 State of the Union address, where he suggested the creation of
“Universal Savings Accounts.” It is also reflected in a plan suggested by
Representatives Archer and Shaw and a number of bills introduced in the 105th and
106th Congresses.
This report does not make any assumptions about the source of funding for
personal savings accounts — i.e., from carving out part of the existing tax rate,
requiring additional withholding, or committing budget surpluses to them. It simply
attempts to show how much could be accumulated for retirement if the creation of
personal accounts were made a component of any Social Security reform package.
While showing these amounts in dollar terms is informative, it does not indicate
the extent to which these accounts could augment or replace Social Security benefits.
To provide some perspective on this question, this report shows the value of the
accumulated assets as a percent of the projected lifetime value of Social Security
benefits under current law.
7 This “add on” approach was a part of the so-called “Individual Accounts” (or IA) plan
sponsored by Advisory Council Chairman Edward Gramlich and member Marc Twinney.
The plan included other measures to raise the income of the Social Security system and reduce
its expenditures. As with the PSA plan (see footnote 5), the intent was to give recipients the
approximate combined benefits from a constrained Social Security program and individual
accounts as they would have received under the Social Security benefit rules of current law.

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It should be kept in mind that under the Social Security trustees’ latest “best
guess” assumptions (i.e., their intermediate forecast), the system’s benefits would not
be payable in future decades at the levels prescribed by current law. Under the
trustees’ assumptions, which underpin the analysis of this report, the trust funds are
projected to be depleted in 2037. Ongoing tax receipts at that point would be
sufficient to finance only 72% of benefit commitments. Hence, the Social Security
benefits projected in this report should be seen only as a baseline for the analysis.
They are “hypothetical” in 2037 and thereafter because the system would not have
sufficient resources to pay them in full.
In the context of this funding gap, one might view the analysis herein as
attempting to show how much of foregone Social Security benefits one might
reasonably expect to replace by creating personal accounts, if Social Security
retirement benefits were to be reduced to cover the gap.
Factors Determining How Much Could be Accumulated
How much can be accumulated in any savings account depends on (1) the
amounts deposited, (2) how long the account is allowed to grow, and, perhaps most
importantly, (3) the rate of return on the investment.8
(1) How much could be deposited into new personal accounts? This report
projects potential asset accumulations resulting from setting aside 1%, 2%, or 3% of
pay for people retiring in the 2010-2050 period. At first glance, these three set-aside
levels may seem small in comparison to the 12.4% of pay currently levied for Social
Security. However, more than $8 out of $10 in Social Security taxes are needed now
to pay benefits to current retirees and the surplus of such is not expected to last for
more than 15 years. Even if benefit curtailments were enacted to enhance these
surpluses, they probably would have to be phased in slowly, thereby having little
impact on the amount that could be diverted to personal accounts in the near term.
As a result, there is not a large amount of surplus Social Security revenue now, nor
projected, to divert for carve out plans.
Alternatively, if an increase in payroll withholding were contemplated (i.e., an
“add on” approach), it is not clear how much the public would find acceptable. A
hike in mandatory withholding of 3% of pay would be the equivalent of nearly a 40%
hike in FICA withholding.9 In the current political climate, it is possible that any
proposed mandatory increase in withholding would be viewed and dismissed as simply
a new taxation scheme.
8 Another factor not examined in this report is the tax treatment of accumulated savings.
Differences in tax rates on contributions versus distributions can affect the net value of
personal savings as a replacement for Social Security benefits.
9 FICA refers to the Federal Insurance Contributions Act. The current FICA tax rate is
7.65% (6.2% being for Social Security and 1.45% being for Medicare’s Hospital Insurance
program) for wage or salaried workers having earnings up to $76,200 in 2000. A new 3%
add-on would raise the total employee deduction to 10.65% of pay — an increase of 39.2%
(3/7.65 = 39.2).

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While this report shows potential fund accumulations based on set-asides only
up to 3% of pay, the reader should note that the impact from even larger set-asides
can be calculated by multiplying the impact from a 1% set-aside by the larger amount
(for instance, to observe the impact of a 5% set-aside, the amounts in the “1% set-
aside” column of the tables in the appendix can be multiplied by 5).
(2) How long could the accounts be assumed to grow? The report looks at
the asset accumulations for workers retiring in the 2010-2050 period at age 65. Three
different lifetime earnings patterns are assumed: one based on the minimum wage;10
another based on average wages;11 and a third based on the maximum level of wages
subject to the Social Security tax (i.e., $76,200 in 2000).12 The projections assume
that the workers start careers at age 21 and work steadily on a full-time basis
throughout their careers. Thus, for purposes of computing Social Security benefits,
they assume a 44-year career at age 65.
For purposes of asset accumulation in the hypothetical personal accounts, the
projections assume different periods of accumulation depending on a person’s age
today, but that the new accounts would take effect no sooner than 2001.13 Thus,
someone retiring at age 65 in 2010 may have a 44-year career for Social Security
purposes but would have only 9 years to grow a new personal account; someone
retiring in 2020 would have 19 years to do so; someone retiring in 2030 would have
29 years; and so on. In effect, the projections do not show the impact of a full
career’s worth of investing until 2045.
(3) How large could the rates of return be? The report measures account
accumulations using two average rate-of-return scenarios: 6.4% and 10% annually.
The first scenario represents the same rate of return projected for the securities held
by the Social Security trust funds, which the trustees assume will ultimately be 6.4%
per year.14 These securities are non-marketable “special issue” federal notes and
bonds which earn rates of interest equivalent to medium- and long-term federal bonds
sold and traded in the financial markets. The second scenario (10% annual rate of
return) represents the approximate growth rate of the Standard and Poor’s (S&P) 500
stock market index (including reinvested dividends) over the period from 1926 to the
10 For this purpose, the minimum wage is assumed to be indexed, growing at the projected rate
of average wages in the economy (see next footnote).
11 Average wages here are those comprising the average-wage indexing series used by the
Social Security trustees in making the intermediate projections in their 2000 report.
12 This maximum level also rises each year at the same rate as the average-wage indexing
series.
13 Based on the assumption that enactment of legislation would not occur earlier than in 2000
and would not be effective earlier than 2001.
14 Under the Social Security trustees’ 2000 intermediate forecast, the nominal annual rate of
interest is expected to range from 6.7% in 2000 to 6.3% in 2006 and thereafter (when the
latter is compounded semi-annually, it results in an effective rate of 6.399%).

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present, minus 1 percentage point per year to reflect administrative costs and related
management fees.15
Table 1. Alternative Rates of Return Assumed in this Report16
Ultimate annual
Scenario
rate of return
Nature of assumption
Worker would receive a return
Personal account’s investment return
equal to that projected for Social
would approximate that achieved by
6.4%a
Security trust funds
a medium to long-term federal
government bond fund
Worker would receive a return
Personal account’s investment return
equal to that of the S&P 500
would equal that of an “equity”
index from 1926 to the present
(common stock) portfolio achieving
10%
same past return as that of the S&P
500 index, minus 1 percentage point
annually
a Represents ultimate annual rate, compounded semi-annually. Figure of 6.4% is rounded rate;
actual rate used in calculations is 6.399%.
In the real world, the assets in personal accounts would not grow steadily as
reflected under the alternatives shown here. Moreover, as all mutual fund
prospectuses and advertisements point out, past performance of the financial markets
or segments thereof is not an indicator of future performance. Finally, individuals will
behave differently in making investment decisions. While two people of the same age
and having the same earnings record would get the same Social Security benefits, it
would be a quirk of fate if, left to their own devices, they achieved the same asset
accumulation in their personal accounts. They will suffer or benefit differently from
ups and downs in the market; from making poor or favorable investment choices; and
if the funds are accessible to them, from possibly consuming some or all of what they
saved before retirement. How people will fare in general is a matter of conjecture.
For these reasons, two different “rate of return” assumptions have been used. The
15 The “1 percentage point” adjustment is a crude proxy for these fees (e.g., for the costs of
buying and selling securities, marketing, and account maintenance). “Index fund” investments
might have costs of a fraction of a percent, whereas actively traded, personally-directed
accounts might have considerably larger transaction charges. Thus, costs will vary with the
level of services offered to account holders. Perhaps most important, experience in other
countries suggests that the extent to which administrative charges cut into the potential rates
of return is heavily dependent on the competition that might exist among investment
companies vying for new accounts. A number of commentators have pointed out that
marketing expenses have been very costly in some countries that have redesigned their Social
Security system to include individual investment components (e.g., Great Britain and Chile).
16 These rates of return are expressed in nominal terms. The corresponding real rates of return
are simply the nominal rates reduced by the underlying inflation assumption (3.3% annually
under the trustees’ intermediate assumptions). Therefore, the real rates of return shown in this
report are: 3% (106.399/103.3=1.03) and 6.5% (110/103.3=1.065).

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report simply attempts to portray the investment outcomes from what may be
considered a reasonably wide range of investment performance.17
Since the motivation for the creation of personal accounts is to replace Social
Security or augment its benefits in the face of possible future cutbacks, the report
compares the amounts in the personal accounts at the time of retirement to the
projected value of a person’s lifetime Social Security benefits (including cost-of-living
adjustments). It measures and expresses the value of lifetime Social Security benefits
in “present value” terms.18 By doing so, it shows in a single figure the amount of
benefits that an individual would receive over the course of his or her retirement years
(assuming the person lives an average lifetime) if those payments were paid as a lump
sum at the time of retirement and that lump sum earned interest over the period of
retirement.19
The report does not make assumptions about the cost of annuitizing the personal
account accumulations — i.e., spreading or paying them out over the period of
retirement. Simulating the process of annuitizing on a scale that encompasses every
potential retiree in society would be complex and highly speculative. Annuitizing
could result in either large or small charges by the annuity providers, depending not
only on the potential costs of administration (which possibly could be minimized
through tight regulation and limiting marketing practices), but more importantly on
the risks of underestimating annuitants’ longevity that insurers would envision in
promising to make the annuity payments and the resulting surcharges they would levy
on the annuity purchaser for assuming those risks. On the other hand, the current
rules pertaining to drawing down IRAs without incurring penalty taxes might be a
proxy used by many retirees who wish to avoid annuitizing and the costs thereof.
They also might avoid these costs by employing a personalized method of drawing
down the account, involving either an accelerated or delayed liquidation of the assets.
Nonetheless, the reader should be conscious of the fact that additional costs might be
imbedded in any future plan to establish personal accounts, if annuitizing were made
an optional or mandatory feature.20
17 People also would be expected to make different decisions about their “other” savings as
well. For instance, if they had the option or were required to invest in a new Social Security
savings account, they might save less in 401(k) accounts or IRAs. Thus, accumulations in
new Social Security savings accounts cannot necessarily be seen simply as offsets to foregone
Social Security benefits because some portion may be an offset to other savings they would
have accumulated otherwise. No adjustment for these possible effects is made in this report.
18 The report computes Social Security benefits using the intermediate economic and
demographic assumptions in the 2000 trustees’ report. Under these projections, wages are
assumed to grow at an ultimate annual rate of 4.3%, and prices at 3.3%. For computations
of present value of benefits, the annual interest rate is 6.399%, and longevity is based on
interpolated unisex assumptions for retirements at age 65 and 70.
19 For a lengthy discussion of annuitization issues, see Social Security Privatization and the
Annuities Market
. CBO. February 1998.
20 The report similarly does not analyze the impact of building personal accounts taking
income taxes into account. Social Security taxes are computed using before-tax earnings of
employees (i.e., Social Security taxes are not deductible in computing income taxes; the
(continued...)

CRS-9
Results
This report summarizes the results for workers who entered (or will enter) the
workforce over the period from 1970 to 2010. They are assumed to retire in the 2010
to 2050 period. In the context of the current debate, it might be useful to consider
these retirees as parts of three successive age groups:
The post-World War II baby boomers — born in the 1946-64 period — who
largely entered the workforce from the late 1960s through the mid-1980s. The baby
boomers actually might be considered in two parts: early boomers, i.e., those retiring
in the 2010-2020 period, and late boomers, those retiring in the 2020-2030 period;
The baby troughers — born from the late 1960s to the late 1970s — who are
now largely recent entrants to the workforce. They will retire in or around the 2030s;
The children of the baby boomers (the baby-boom echo) — born in the late
1970s through the 1990s — the oldest of whom are now entering the workforce.
They will retire in or around the 2040s.
The baby boomers. The baby boomers will reach age 62 (the youngest age at
which Social Security retirement benefits can be paid) in the 2008-2026 period. For
those who wait until age 70 to collect benefits, that would occur from 2016 to 2034.
Since their hypothetical personal accounts would not be assumed to start until 2001,
early baby boomers would have less time to accumulate; later baby boomers would
have more. Similarly, those who work to a later age (i.e., to age 65 or 70, instead of
62) also would have more time to build their accounts.
As Table 2 and the more detailed Appendix tables show, even under the more
optimistic investment scenario projected here (a 10% per year rate of return), the
earliest baby boomers would not have enough time to accumulate large personal
accounts relative to their projected lifetime Social Security benefits.21 With a 1% of
pay set-aside, workers with average earnings, retiring at age 65 in 2010, would have
accumulated a fund equal to only 2% of their lifetime Social Security benefits. With
a 2% set-aside, the fund would equal only 5% of their benefits, and with a 3% set-
aside, only 7%. Even later baby boomers, i.e., those retiring at age 65 in 2020, would
have accumulated only modest amounts — 6% of benefits with a 1% of pay set-aside;
13% with a 2% set-aside; and 19% with a 3% set-aside. Thus, the more rapid the
20 (...continued)
employers’ share, however, is deductible as a business expense), and up to 85% of Social
Security benefits may be taxable upon receipt. While recognizing that income tax effects can
alter the results, to simplify the analysis, no assumptions are made about the income tax
treatment of either (1) Social Security taxes and benefits or (2) the contributions to and
payments from the hypothetical personal accounts summarized in this report.
21 The reader should note that the account accumulations shown in Tables 8 through 10 in
the Appendix are expressed in nominal terms, i.e., they have not been adjusted for inflation.
If shown in what economists refer to as “real” terms (adjusted for inflation), lower amounts
would have been reflected. In effect, the figures in the tables show both the combined effects
of inflation and real growth on the account values.

CRS-10
phase-in to a constrained or alternative Social Security system, the more difficult it
would be for many baby boomers to make up for foregone Social Security benefits.
Table 2. Value of Personal Accounts As Percent of Current Law
Social Security Benefits for Average-Wage Earners
Retiring in the Period From 2010 to 2050
Year of retirement at age
Same rate as Social Security
Same rate as past S&P 500
65
trust funds
performance
6.4%a
10%
Assuming 1% of pay set aside
2010
2%
2%
2020
4%
6%
2030
8%
14%
2040
12%
26%
2050
13%
34%
Assuming 2% of pay set aside
2010
4%
5%
2020
9%
13%
2030
16%
28%
2040
23%
51%
2050
27%
67%
Assuming 3% of pay set aside
2010
6%
7%
2020
13%
19%
2030
23%
41%
2040
34%
77%
2050
40%
101%
a Represents ultimate annual rate, compounded semi-annually. Figure of 6.4% is rounded rate;
actual rate used in calculations is 6.399%.
Note: See Tables 8 to 11 in the Appendix for the complete range of results, including
those for minimum and high-wage earners.
The baby troughers. The accumulations in personal accounts begin to take on
a more notable magnitude with workers retiring in the 2025 to 2030 period. In these
cases, workers would have had 25 to 30 years to build their accounts. A 3% of pay
set aside, for instance, earning a 10% annual return for 29 years, could grow to an
amount equal to 41% of the lifetime value of an average-wage earner’s Social
Security benefits. Even with rates of return only matching the government bond rate
(6.4% per year), a 3% of pay set-aside could render an account accumulation equal
to 23% of a worker’s Social Security benefits. To put this in a policy context, it
might be noted that a proposal raising the age for full Social Security benefit to 70 by

CRS-11
2029,22 one of a number of proposals often suggested as a means to help alleviate
Social Security’s financing problems, would reduce current law benefits by 20% for
workers retiring between ages 62 and 65. The 29-year accumulation in an account
funded with a 3% of pay set-aside, growing at the government bond rate, would more
than offset this reduction, and it would be twice as large as the reduction if the
account were assumed to achieve a 10% annual return (see Table 2).
The children of the baby boomers (the baby-boom echo). The accumulations
for workers retiring in the 2045-2050 period, reflecting a full career’s worth of
investing, would become quite large even with modest investment success. For those
retiring at age 65 in 2050, the 44-year build-up from a 1% of pay set-aside growing
at the government bond rate (6.4% per year) would reach a level equal to 13% of
lifetime Social Security benefits; a 2% set-aside would equal 27%; and a 3% set-aside
would equal 40%. With a 10% annual return, the account build-ups range from levels
equal to 34% of benefits with a 1% set-aside to 101% with a 3% set-aside.
Effect of delaying retirement. The obvious impact of workers’ delaying
retirement is that it would give them additional time to build their personal accounts.
However, not so obvious is that it also means they would earn larger Social Security
benefits. Workers who delay would incur fewer or no age-related reductions in their
Social Security benefits, and those benefits would reflect general cost-of-living
adjustments granted in and after the year they reached 62 as well as potentially higher
wage histories. Hence, while their personal accounts would grow to larger levels if
they delay retirement, the differences are not substantial when expressed as a
percentage of Social Security benefits (see Table 3).
Table 3. Value of Personal Accounts As Percent of Current Law Social
Security Benefits for Average-Wage Earners — Illustrations of
Impact of Delaying Retirement From Age 65 to Age 70
Same rate as Social
Same rate as past S&P
Security trust funds
500 performance
6.4%a
10%
Assumes 2% of pay set aside
Example #1:b
For worker retiring at age 65 in 2020:
9%
13%
If he/she waits to retire at age 70 in
10%
16%
2025:
Example #2:
For worker retiring at age 65 in 2030:
16%
28%
If he/she waits to retire at age 70 in
18%
32%
2035:
a Represents ultimate annual rate, compounded semi-annually. Figure of 6.4% is rounded rate;
actual rate used in calculations is 6.399%.
22 Assumes age for full Social Security benefits would rise by 2 months per year over the
2000-2029 period.

CRS-12
b In the first example above, the balance of the account would have risen from $33,019 in 2020 to
$54,279 in 2025 – a 64% rise. The lifetime value of the worker’s Social Security benefits would
have risen from $374,271 to $551,186 – a 47% rise.
Effect of accumulating personal accounts on the low-wage “tilt” of the
Social Security system. The following table shows that personal account
accumulations would represent a larger percentage of Social Security benefits for
high-wage earners than low-wage earners. This outcome reflects the fact that the
current Social Security benefit formula is “tilted” in favor of low-wage earners.23
Although Social Security benefits are not based on a worker’s taxes, a comparison of
taxes paid to benefits received will show that lower-wage earners receive a higher
return on their taxes than higher-wage earners. Similarly, when benefits in the first
year of retirement are compared to a worker’s final earnings, lower-wage earners
have a larger percentage of their earnings replaced by benefits. This so-called “tilt”
in the system is deliberate and has existed since the system’s inception. It is one of
the social features of the program, reflecting the view that Social Security should
provide a means through which low-wage workers can sustain at least a “minimal”
standard of living in retirement without resorting to welfare.
This report does not debate the merits of the “tilt” but merely shows that a
retirement system based strictly on worker contributions and investment performance
— i.e., that does not discriminate in favor of or against workers based on their relative
earnings — will produce asset accumulations that represent a larger percentage of
Social Security benefits for high-wage earners (see Table 4).
23 Benefits are computed by applying a three-step formula to a worker’s “average indexed
monthly earnings” (AIME) calculated using as many as 35 years’ worth of earnings. For
workers reaching age 62 in 2000, monthly benefits are the sum of 90% of the first $531 of
AIME, 32% of the next $2,671, and 15% of the remainder. Both the earnings used to
compute the worker’s AIME and the so-called “bend points” in the benefit formula (“$531"
and “$3,202" in 2000) are indexed to reflect growth in average wages in the economy. For
retirees, each year’s earnings are indexed from the year they were earned to the year the
worker reaches age 60. Earnings at age 60 and beyond are included in the calculation at their
nominal value.

CRS-13
Table 4. Value of Personal Accounts As Percent of Current Law
Social Security Benefits — Differences Between
Minimum, Average, and High-Wage Earners
For workers retiring at age 65 who steadily contributed 2% of pay to personal account
(accounts assumed to earn 6.4% per year)a
Relative lifetime earnings level
Retirement year Minimum-wage earner
Average-wage earner
Maximum-wage earner
2010
3%
4%
6%
2020
6%
9%
13%
2030
10%
16%
24%
2040
15%
22%
34%
2050
17%
25%
38%
a Represents ultimate annual rate, compounded semi-annually. Figure of 6.4% is rounded rate;
actual rate used in calculations is 6.399%. For results assuming a 10% investment return, see tables
in the Appendix.
A key point here is that an across-the-board cut in Social Security benefits (e.g.,
to help eliminate the system’s long-range imbalance), when coupled with building
personal accounts, would weigh heaviest on low-wage earners. The accumulations
in their personal accounts would not make up for as much of the cut as it would for
average and high-wage earners. For instance, using the table above, if the benefit
cutback were designed to achieve a 16% general reduction by 2030, it would roughly
match the personal account accumulation of average-wage earners, but not that of
low-wage earners. The low-wage earners’ accumulations would equal only 10% of
their Social Security benefits. The accumulations of high-wage earners, on the other
hand, would notably exceed the cut – their accumulations would equal 24% of their
Social Security benefits.24
24 Examples of possible general reduction measures include raising the age for full Social
Security benefits beyond 67 and slowing the “indexing” embedded in the Social Security
benefit computation rules. These approaches tend to reduce benefits by an equal percentage
regardless of the level of a worker’s underlying earnings histories. One approach that has
been suggested to mitigate the impact on low-wage earners is to slow the indexing of the
middle and/or top portions of the Social Security benefit formula, or perhaps create a less
generous fourth bracket. In this context, a new fourth bracket would use a lower percentage
rate than in the current third bracket to convert a worker’s earnings into a benefit amount. By
so doing, low-wage earners would incur less (or no) reduction in their Social Security benefits.
This means of reducing the impact of a benefit cut on low-wage earners could be
accomplished with either an increase in the “full” benefit age or a benefit indexing constraint.
If included with an increase in the “full” benefit age, part of the needed program savings
would be achieved by changing the “full” benefit age and part by reducing benefit indexing
for middle and/or higher-wage earners. In this case, the increase in the “full” benefit age
could be phased in more slowly or raised less than it otherwise would be to achieve a given
level of program savings. See previous footnote for a more complete description of the
current benefit formula and the indexing rules.

CRS-14
Table 5. Varying Amounts by Which a Personal Account Could
Mitigate a Hypothetical 16% Social Security Cut For Workers
Retiring at Age 65 in 2030 — Assuming Personal Account Funded
With a 2% of Pay Set Aside, Earning 6.4%a Per Year25
Percent of final year’s earnings replaced by benefits
Social Security benefits
Social Security
Social Security
assuming 16% cut plus
benefits under
benefits assuming
benefits being paid
Earnings pattern
current law
16% cut
from personal account
Minimum-wage earner
57%
48%
53%
Average-wage earner
37%
31%
36%
Maximum-wage earner
24%
20%
26%
a Represents ultimate annual rate, compounded semi-annually. Figure of 6.4% is rounded rate;
actual rate used in calculation is 6.399%.
It is important to note that the tilt in the combined benefit package (i.e., the
lower Social Security benefits coupled with the new personal account benefits) is
lessened a little, but not greatly, in the example reflected in Table 5 (compare the first
and third columns in the table). The example assumes that 2% of pay is set aside
annually and it earns an annual investment return of 6.4%. With a larger set-aside
and/or a greater investment return, the “tilt” would be further reduced. At the same
time, if the set-aside or investment return were larger than assumed in these examples,
the value of the low-wage earner’s combined benefits would come closer or perhaps
exceed the value of Social Security benefits payable under current law. If, for
instance, in the previous example, the investment return were 10% per year from a
2% set-aside, the combined benefits of minimum, average, and maximum-wage
earners would all exceed the Social Security benefits projected under current law
(compare third column to first column in Table 6).
Hence, while the system’s tilt might be lessened from relying on personal
accounts, the growth in the low-wage earner’s account might be such that the worker
is no worse off than if current-law Social Security benefits were sustained.
25 This table assumes that some underlying mechanism is established for annuitizing the
personal account accumulations or, in some other way, paying benefits periodically from these
accounts.

CRS-15
Table 6. Varying Amounts by Which a Personal Account Could
Exceed a Hypothetical 16% Social Security Cut For Workers
Retiring at Age 65 in 2030 — Assuming Personal Account Funded
With a 2% of Pay Set Aside, Earning 10% Per Year
Percent of final year’s earnings replaced by benefits
Social Security benefits
Social Security
Social Security
assuming 16% cut plus
benefits under
benefits assuming
benefits being paid
Earnings pattern
current law
16% cut
from personal account
Minimum-wage earner
53%
48%
57%
Average-wage earner
37%
31%
41%
Maximum-wage earner
24%
20%
30%
The impact of a full career’s worth of personal account building. Assuming
workers begin contributing to personal accounts no sooner than the year 2001, a full
career’s worth of building a personal account by an age-65 retiree — i.e., 44 or more
years’ worth — would not be reached until 2045 at the earliest. In effect, the full
impact of a proposal to create personal accounts as an alternative or supplement to
Social Security could not be achieved by the baby-boom cohorts, most of whom
would have retired long before 2035. Hence, the 2000-2035 period would have to
be considered a transition.
In this analysis, a full career’s worth of contributions and investing is illustrated
by the account accumulations for workers retiring in 2050. Examples are shown in
Table 7. At one end of the spectrum, the table shows that a 1% set-aside growing
at the same rate as the Social Security trust funds would yield an asset accumulation
at age 65 equal to 13% of the value of an average-wage earner’s lifetime Social
Security benefits. At the other end of the spectrum, with 10% annual return, the asset
accumulation would equal 34% of the lifetime Social Security benefits. With a 3%
set-aside, the range would be 40% with a 6.4% annual return to 101% with a 10%
annual return. This comparison shows the power of interest compounding over long
periods of time and the fairly wide range of investment outcomes that can result.

CRS-16
Table 7. Value of Personal Accounts As Percent of Current Law
Social Security Benefits — Illustrations of a
“Full” Career’s Worth of Contributions
Value of personal account at retirement as percent of Social Security
benefit
Personal account grew at:
Same rate as Social Security trust
Same rate as past S&P 500
Year of retirement
funds
performance
6.4%a
10%
Average-wage earner, retiring at age 651% of pay set aside
2050
13%
34%
Average-wage earner, retiring at age 652% of pay set aside
2050
27%
67%
Average-wage earner, retiring at age 653% of pay set aside
2050
40%
101%
a Represents ultimate annual rate, compounded semi-annually. Figure of 6.4% is rounded rate;
actual rate used in calculation is 6.399%.
For more detailed results, including those for minimum- and high-wage earners, see tables in the
Appendix.
A key observation is that a 3% of pay set-aside invested using a relatively safe
investment strategy (i.e., at the government bond rate) would generate an asset
accumulation equal to 40% of a retiree’s projected lifetime Social Security benefits.
If one considers that 3% of pay is equal to only a little more than a quarter of the
long-range Social Security tax rate (the portion that goes for Old-Age and Survivors’
Insurance is now set in the law at 10.6% of pay) and that, to put the system into
financial balance, either the tax rate would have to rise ultimately to nearly 17% of
pay or that benefits overall would have to be cut by more than 30%, the personal
account would appear to produce a better return than the equivalent taxes paid to the
Social Security system – i.e., setting aside a little more than a quarter of the taxes
could produce a personal account worth at least 40% of the benefits.26 Said another
way, the inherent rate of return in the current Social Security system for a worker
with a steady average-wage record would appear to be less than the government bond
rate. It would be higher for minimum-wage earners and much less for high-wage
earners.27
26 The projected cost of the Old-Age and Survivors’ Insurance portion of the system,
expressed as a percent of taxable payroll, is 16.89% for 2075 (under the intermediate forecast
of the 2000 Social Security trustees’ report). Note that about two percentage points is
attributable to survivor protection. Thus, the long-range tax rate for the retirement portion
of the system would have to be more like 15%, not 17%.
27 It is important to note that the system’s return on contributions would be higher for
examples in which a worker’s dependent spouse and children are paid benefits in addition to
the worker’s own benefit. The examples provided throughout this report reflect the value of
personal account accumulations against only a worker’s Social Security benefits. The
(continued...)

CRS-17
While some consider this to be a “fundamental” flaw in the system, others do
not. In its current form, Social Security is considered to be “social insurance.” As
such, its purpose is not simply to afford annuities as they might result from a private
retirement savings plan. It also attempts to “insure” society against wide-scale
dependency among the aged. It has a “tilted” benefit formula favoring low-wage
earners; it pays benefits to a retired worker’s dependents regardless of the worker’s
contributions; it assumes the market risks of annuitization (which the private sector
would otherwise charge for) as well as inflation (by affording automatic cost-of-living
adjustments); and workers’ benefits are not based on their own contributions or those
of their age cohorts, but on the immediate costs of the system (i.e., it’s a “pay-as-you-
go” rather than “fully-funded” system). In effect, part of a worker’s Social Security
withholding is a “social” tax — it reflects a progressive philosophy — and in this
context, it would be reasonable to expect high-wage earners, and perhaps average
earners, to have less of a return on their taxes than low-wage earners. The
advantages to society’s having lower overall dependency and its workers having a
greater sense of economic security would be seen as intangibles that are not reflected
in a strict taxes-to-benefits analysis.
This is not to suggest that the system’s current design and its varying returns on
taxes at different income levels reflect the best policy today or in the future. The
system was created 65 years ago under very different economic and social
circumstances. The point here is only that, while understanding the potential returns
from private investments is important, ultimately, it is a value judgment and political
matter whether the varying returns that the system provides to today’s workers should
be made more uniform or considered an acceptable consequence of the system’s
current design.
27 (...continued)
“worker only” case is by far the most representative of future retirees, since a large majority
of today’s working spouses will earn benefits in their own right and, therefore, will be
ineligible for a dependent spouse’s benefit.

CRS-18
For Additional Reading
For more information on congressional and other proposals that would allow or
require personal savings accounts.
CRS Report RL 30138. Social Security Reform: Bills in the 106th Congress, by
David Koitz.
CRS Report RL 30397. Social Security Reform: Individual Account Proposals, by
James Storey.
CRS Report RL 30571. Social Security Reform: The Issue of Individual Versus
Collective Investment for Retirement
, by David Koitz.
CRS Report No. 98-961. Social Security Reform: Projected Contributions and
Benefits Under Three Proposals (S. 1792 and S. 2313/H.R. 4256 in the 105th
Congress, and a Plan by Robert M. Ball),
by Geoffrey Kollmann, David Koitz, and
Dawn Nuschler.

CRS-19
APPENDIX
Table 8. Projected Social Security Benefits and Accumulations in a
Personal Savings Account (in nominal dollars) — Retirement at AGE
65, with 1% Set Aside During Working Years
Year of
Present value of
Value of personal account at retirement – the account
retirement
Social Security
Same rate as Social Security
Same rate as past S&P
at age 65
benefits
trust funds
500 performance
6.4%a
10%
Minimum-wage earner
2010
$145,516
$1,502
$1,760
2015
$175,191
$3,032
$3,906
2020
$210,173
$5,349
$7,615
2025
$238,072
$8,793
$13,897
2030
$289,661
$13,840
$24,399
2035
$358,039
$21,157
$41,784
2040
$329,797
$31,669
$70,365
2045
$546,808
$46,664
$117,116
2050
$681,100
$57,533
$144,300
Average-wage earner
2010
$242,818
$4,635
$5,431
2015
$303,368
$9,358
$12,057
2020
$374,271
$16,509
$23,503
2025
$439,028
$27,140
$42,895
2030
$547,693
$42,720
$75,308
2035
$683,011
$65,303
$128,968
2040
$851,416
$97,749
$217,187
2045
$1,060,874
$144,031
$361,487
2050
$1,321,393
$177,579
$445,392
Maximum-wage earner
2010
$377,926
$11,278
$13,214
2015
$482,169
$22,759
$29,324
2020
$575,708
$40,143
$57,153
2025
$703,260
$65,978
$104,293
2030
$877,955
$103,846
$183,089
2035
$1,094,808
$158,729
$313,529
2040
$1,362,669
$237,578
$527,974
2045
$1,697,961
$350,046
$878,732
2050
$2,114,553
$431,469
$1,082,371
a Represents ultimate annual rate, compounded semi-annually. Figure of 6.4% is rounded rate;
actual rate used in calculation is 6.399%.
Note: Social Security benefits were calculated under current law rules using the intermediate
assumptions of the 2000 Social Security trustees’ report (see footnote 18 on page 8).

CRS-20
Table 9. Projected Social Security Benefits and Accumulations in a
Personal Savings Account (in nominal dollars) — Retirement at AGE
65, with 2% Set Aside During Working Years
Year of
Present value of
Value of personal account at retirement – the account
retirement
Social Security
Same rate as Social Security
Same rate as past S&P
at age 65
benefits
trust funds
500 performance
6.4%a
10%
Minimum-wage earner
2010
$145,516
$3,004
$3,520
2015
$175,191
$6,064
$7,812
2020
$210,173
$10,698
$15,230
2025
$238,072
$17,586
$27,794
2030
$289,661
$27,680
$48,798
2035
$358,039
$42,314
$83,568
2040
$329,797
$63,338
$140,730
2045
$546,808
$93,328
$234,232
2050
$681,100
$115,066
$288,600
Average-wage earner
2010
$242,818
$9,270
$10,862
2015
$303,368
$18,716
$24,114
2020
$374,271
$33,018
$47,006
2025
$439,028
$54,280
$85,790
2030
$547,693
$85,440
$150,616
2035
$683,011
$130,606
$257,936
2040
$851,416
$195,498
$434,374
2045
$1,060,874
$288,062
$722,974
2050
$1,321,393
$355,158
$890,784
Maximum-wage earner
2010
$377,926
$22,556
$26,428
2015
$482,169
$45,518
$58,648
2020
$575,708
$80,286
$114,306
2025
$703,260
$131,956
$208,586
2030
$877,955
$207,692
$366,178
2035
$1,094,808
$317,458
$627,058
2040
$1,362,669
$475,156
$1,055,948
2045
$1,697,961
$700,092
$1,757,464
2050
$2,114,553
$862,938
$2,164,742
a Represents ultimate annual rate, compounded semi-annually. Figure of 6.4% is rounded rate;
actual rate used in calculation is 6.399%.
Note: Social Security benefits were calculated under current law rules using the intermediate
assumptions of the 2000 Social Security trustees’ report (see footnote 18 on page 8).

CRS-21
Table 10. Projected Social Security Benefits and Accumulations in a
Personal Savings Account (in nominal dollars) — Retirement at AGE
65, with 3% Set Aside During Working Years
Year of
Present value of
Value of personal account at retirement – the account
retirement
Social Security
Same rate as Social Security
Same rate as past S&P
at age 65
benefits
trust funds
500 performance
6.4%a
10%
Minimum-wage earner
2010
$145,516
$4,506
$5,280
2015
$175,191
$9,096
$11,718
2020
$210,173
$16,047
$22,845
2025
$238,072
$26,379
$41,691
2030
$289,661
$41,520
$73,197
2035
$358,039
$63,471
$125,352
2040
$329,797
$95,007
$211,095
2045
$546,808
$139,992
$351,348
2050
$681,100
$172,599
$432,900
Average-wage earner
2010
$242,818
$13,905
$16,293
2015
$303,368
$28,074
$36,171
2020
$374,271
$49,527
$70,509
2025
$439,028
$81,420
$128,685
2030
$547,693
$128,160
$225,924
2035
$683,011
$195,909
$386,904
2040
$851,416
$293,247
$651,561
2045
$1,060,874
$432,093
$1,084,461
2050
$1,321,393
$532,737
$1,336,176
Maximum-wage earner
2010
$377,926
$33,834
$39,642
2015
$482,169
$68,277
$87,972
2020
$575,708
$120,429
$171,459
2025
$703,260
$197,934
$312,879
2030
$877,955
$311,538
$549,267
2035
$1,094,808
$476,187
$940,587
2040
$1,362,669
$712,734
$1,583,922
2045
$1,697,961
$1,050,138
$2,636,196
2050
$2,114,553
$1,294,407
$3,247,113
a Represents ultimate annual rate, compounded semi-annually. Figure of 6.4% is rounded rate;
actual rate used in calculation is 6.399%.
Note: Social Security benefits were calculated under current law rules using the intermediate
assumptions of the 2000 Social Security trustees’ report (see footnote 18 on page 8).

CRS-22
Table 11. Projections of Personal Account Accumulations As
Percent of Social Security Benefits — Retirement at AGE 65
Value of personal account at retirement as % of Social Security benefit
Personal account grew at:
Year of
retirement at age
6.4%a – Same rate as Social
10% – Same rate as past
65
Security trust funds
S&P 500 performance
Amount of set-aside (As % of pay)
1%
2%
3%
1%
2%
3%
Minimum-wage earner
2010
1.0%
2.1%
3.1%
1.2%
2.4%
3.6%
2015
1.7%
3.5%
5.2%
2.2%
4.5%
6.7%
2020
2.5%
5.1%
7.6%
3.6%
7.2%
10.9%
2025
3.7%
7.4%
11.1%
5.8%
11.7%
17.5%
2030
4.8%
9.6%
14.3%
8.4%
16.8%
25.3%
2035
5.9%
11.8%
17.7%
11.7%
23.3%
35.0%
2040
7.2%
14.3%
21.5%
15.9%
31.9%
47.8%
2045
8.5%
17.1%
25.6%
21.4%
42.8%
64.3%
2050
8.5%
16.9%
25.4%
21.2%
42.4%
63.6%
Average-wage earner
2010
1.9%
3.8%
5.7%
2.2%
4.5%
6.7%
2015
3.1%
6.2%
9.2%
4.0%
7.9%
11.9%
2020
4.4%
8.8%
13.2%
6.3%
12.6%
18.9%
2025
6.2%
12.4%
18.6%
9.8%
19.5%
23.5%
2030
7.8%
15.6%
23.4%
13.8%
27.5%
41.3%
2035
9.6%
19.1%
28.7%
18.9%
37.8%
56.7%
2040
11.5%
23.0%
34.4%
25.5%
51.0%
76.5%
2045
13.6%
27.2%
40.7%
34.1%
68.1%
102.2%
2050
13.4%
26.9%
40.3%
33.7%
67.4%
101.1%
Maximum-wage earner
2010
3.0%
6.0%
8.9%
3.5%
7.0%
10.5%
2015
4.7%
9.4%
14.2%
6.1%
12.2%
18.2%
2020
6.7%
13.4%
20.1%
9.6%
19.1%
28.7%
2025
9.4%
18.8%
28.1%
14.8%
29.7%
44.5%
2030
11.8%
23.7%
35.5%
20.9%
41.7%
62.6%
2035
14.5%
29.0%
43.5%
28.6%
57.3%
85.9%
2040
17.4%
34.9%
52.3%
38.8%
77.5%
116.3%
2045
20.6%
41.2%
61.9%
51.8%
103.5%
155.3%
2050
20.4%
40.8%
61.2%
51.2%
102.4%
153.6%
a Represents ultimate annual rate, compounded semi-annually. Figure of 6.4% is rounded rate;
actual rate used in calculation is 6.399%.
Note: Social Security benefits were calculated under current law rules using the intermediate
assumptions of the 2000 Social Security trustees’ report (see footnote 18 on page 8).