It would increase freedom of choice and allow for tax cuts.

The Benefits of Reform Personal ownership and control and broader freedom of choice. Workers would personally and directly own the funds in their individual accounts, like their own personal bank accounts. They would enjoy freedom of choice over investment of those accounts in a wide range of professionally managed funds. They would also enjoy broader freedom of choice over retirement age, as workers could retire at any age after 59 1/2. Workers would be free to choose to leave substantial funds from their accounts to their children or other heirs. They would also each be free to choose to stay in the current Social Security system as is. Higher returns. A conservative diversified portfolio of half stocks and half bonds would yield a real return of around 5 percent, after accounting for administrative costs. Even though under the reform proposal advanced here substantially less would be paid into the personal accounts than the tax payments required by Social Security, at standard market investment returns workers would get substantially more in benefits from the personal accounts than Social Security promises. Social equity, and benefits for minorities. Low-income workers would receive similar gains under our progressive proposal. The poor deal offered by Social Security applies with a vengeance to African-Americans, because they have much lower life expectancies than the general population. Consequently, they tend to live fewer years in retirement to collect benefits, and more frequently die before reaching retirement age. Workers who die before retirement or just after retirement would be able to leave the account funds they had accumulated to their children or other heirs. Hispanics also suffer from a special problem under Social Security. The Hispanic population is much younger than the general population, and since the return paid by Social Security is falling over time, younger populations get lower returns on average than others. A social safety net. The personal account system would be backed up by a social safety net guaranteeing that workers with the accounts would get at least what they would have gotten from the old Social Security framework. Broader and more equal ownership. Through these accounts, below-average-income workers would enjoy their only real chance to participate in capital markets like higher income workers and accumulate substantial savings and capital. Greatest tax cut in world history. Under this reform proposal, the payments into the personal accounts would be about one-third less than the current taxes for Social Security retirement benefits. Eventually, as the transition costs are brought under control, the current tax would be reduced to the mandatory payments into the accounts, for those who exercise the account option. Such a reduction in payroll taxes amounts to a payroll tax cut of about one-third, shared equally between future workers and employers. The rest of the current payroll tax is transformed into private payments into personal, individual, investment accounts. Greatest reduction in government debt in world history. Ultimately, we would reach the point where virtually all retirees are relying on personal accounts for their retirement benefits. At that point, the old Social Security framework would bear little or no benefit obligations, and there would consequently be no major deficit of any significance for that older system to cover. As a result, the personal accounts would have completely eliminated the unfunded liabilities of Social Security. Moreover, the net impact of the transition to personal accounts on the annual budget deficit is zero under this reform plan, because the transition is financed completely off-budget.