Comparing Social Security Reform Options

The Social Security program has received a great deal of attention recently as President Bush has been pushing for the inclusion of individual accounts within the program. The president has not specified a detailed proposal, but one of the reform models (Model 2) that was outlined by his Commission to Strengthen Social Security in December 2001 has elements that are closest to what the administration is advocating. As documented in the Social Security Trustees' annual reports, the program faces undeniable long-term financial challenges, especially as the post-World War II baby boom generation begins to retire in large numbers. Consequently, sooner or later some changes will need to be made to the Social Security system to place it on solid long-term fiscal footing. This paper compares the Model 2 individual account option with three other Social Security options that provide benchmark levels of benefits for comparison. These options are: (1) funding current-law benefits (current-law benefit with taxes raised); (2) a gradual reduction in benefits; and (3) "cliff" benefit cuts, at the date of the depletion of the OASDI Trust Fund