Bush’s Progressive Indexation Plan: A Key Step to Preserve Social Security

From The Heritage Foundation:

Two key changes in the Social Security system are needed to achieve retirement security for all Americans. The first is to phase in changes to the structure of traditional Social Security benefits to create a system of real benefits on which workers and retirees can depend rather than promised benefits that cannot be paid. This step requires Congress to slow the growth of traditional benefits for middle- and upper-income Americans, who are much less dependent on Social Security for their retirement income, so that the benefits of lower-income Americans can be protected and improved. President George W. Bush’s bold call for “progressive indexation” recognizes this need, and Congress should incorporate it into reform legislation.

The second step is to allow workers the opportunity to supplement traditional Social Security benefits by using part of their current payroll taxes to create voluntary personal retirements account (PRAs) that they own. This step is also in the Bush proposal. These accounts would be invested in safe bonds and mutual funds in order to produce an additional monthly retirement benefit and a retirement nest egg. The key to getting the full retirement advantage of PRAs is to let workers invest as large a slice of their payroll taxes as is reasonably possible in their PRAs. In this respect, President Bush’s 4-percent “carve out” proposal is the minimum acceptable, and Congress would do well to expand on it.

With this two-step reform in place, workers could look forward to larger monthly retirement checks than today’s Social Security can afford to pay and a nest egg that they could use during retirement or pass on to their heirs.