Catherine Martin hosts Ask the White House

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Thank you for joining us on "Ask the White House" today. Cathie will be with us in just a moment. Please stay tuned.

Catherine Martin
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 writes:
I am anxious for the President's Social Security changes to be implimented. How long before the nation can start the President's plan? Please convey my Thanks and Admiration to President Bush.Susanna in Germantown TN.

Catherine Martin
Your reply: Susanna, We are anxious for the Congress to act on the President’s Social Security proposal as well. Since he outlined his vision to permanently strengthen Social Security in the State of the Union on February 2nd, the President has been traveling the country talking directly to the American people about the problems facing the current system and the need to fix it for future generations. The American people now understand the fiscal challenges the system faces. The President knows that when the American people see a problem that needs to be addressed, they expect their leaders to take action. The President believes the time to act is now – so that we aren’t passing on problems that are more expensive and more difficult to our children and grandchildren.

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.

Yanina writes:
Hello, I would like to get Presiden's Bush complete report on the Reform of the Social Security. I tried various articles but, they are only bits and pieces.

Catherine Martin
Yanina, The White House website has a Social Security page with all of the President’s speeches, events, fact sheets and policy proposals on Social Security. This is a great place to start. In addition, the United States Department of Treasury has an information center that is devoted to providing information about Social Security and the President’s plan to strengthen it for future generations. The link to the SSIC website is www.strengtheningsocialsecurity.gov. Another good resource for information about the current Social Security system is www.SSA.gov.

Leonard, from Tempe, AZ writes:
Dear Catherine, Can you explain what the personal savings accounts will do for young americans like my self? I am 23 years old and live in Arizona.

Personal accounts are essential to fulfill Social Security’s promises for younger workers. Under current law, by the time you reach the normal retirement age of 67 in the year 2049, Social Security’s 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 today’s dollars. That’s a real nest-egg of savings that the current system doesn’t provide.

Daniel, from Lakeville, CT writes:
I am a 15 year old very interested in politics and the economy. Why don't we raise the $90,000 cap on income that is taxed by Social Security?

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 won’t solve the system’s 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.

Jon, from Avon, CT writes:
Hello, I'm 15 12 and I'm going to start working this summer. I will start getting a paycheck this summer. Now, I understand that there is a new bill about private accounts. What do you personally think of this bill? Do you think its going to be passed? Will there be bigger benifits for me or for the government if it's put in place? Thank you. (P.S. Say hi to good ol' George for me)

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 don’t feel like you’ll ever see that money again, particularly with the financial troubles facing Social Security.

One of the great things about the President’s 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 you’ve 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 people’s faith in Social Security. Many kids don’t 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 don’t save enough, and with personal accounts younger Americans can get a head-start on a really good habit.

ursula, from long beach, ca writes:
hey catherine, i'm assuming everyone participating in this online discussion is already somewhat knowledgable and curious about this issue. what's the best way for us supporters and organized groups, like 'students for saving social security' to reach the masses, get the word out, and make our voices heard? we may be young, but we know what's up

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 today’s 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.

Ashley, from Detroit, Michigan writes:
Dear Cathie,My 23-year old sister works for the government in DC and I know she currently puts about one hundred dollars into her TSP account each month. Could you please explain the TSP account to me as well as I am curious what will happen when she leaves the government. Will this account carry with her and remain sealed until she reaches retirement age?

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:
I am graduating from college next month and will be working in the private sector. As a member of our "future generation", what advice do you have so that I will be taken care of when I retire in 40 years?

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.

Will, from Houston, Texas writes:
Hi, Catherine. I recently turned 24, and it's clear that my generation has the most to gain with personal accounts AND the most to lose under the current system. Most people I know seem to be excited about Social Security reform, but some are still confused about whether investing a portion of the payroll tax would be optional. The way I understand it, everyone would have the choice of staying in the current system or opening a personal account. Is that right?(By the way, Hook 'em Horns).

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 system’s finances. And, under the President’s 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:
1) What happens if a person doesn't make enough money to have a personal saving account for the President's plan? Where is the money going to come from? 2) What if the President's plan passed and their personal saving account was in stocks, or whatever and the country had another Stock Crash, or even worse, another 911? What would happen to the people's social security personal saving account? How would they be able to have a stress free old age?

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:
Ms. Martin,What do you recommend young people do to get involved and perhaps really make a positive difference in order to see the President's proposal for personal savings accounts go forward and become law?

Catherine Martin
Brian, Great question! Social Security reform is very important for future generations. If we do not act now to make Social Security permanently solvent, your generation and future generations will be saddled with dramatically higher taxes or severe benefit cuts. The President wants to strengthen Social Security once and for all and make it a better deal for younger workers by giving them the option of investing a portion of their payroll taxes in a voluntary personal retirement account that you own and control and that can give you an opportunity for a better rate of return. Young people need to speak out on this issue. Get involved and write your Members of Congress to tell them you want them to act now to fix Social Security.