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Author: PMcMullenCT Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5267  
Subject: Re: The Transition Cost. Date: 1/18/2001 9:27 AM
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Social Security right now pays out about $350 billion in benefits. In order to move to a prefunded system we would need around $4.375 trillion right now to be in the collective retirement accounts of all current retirees earning 8% interest. That doesn't even count the next 20 years of retirees, or factor in the demographic change.

One idea is that by diverting a portion of SS contributions into private accounts, they will reduce the obligation to the next 20 years of retirees. One plan I heard called for the return on those private accounts to replace benefits that would otherwise have been paid by SS. By allowing that money to grow at market rates, the reduction in contributions now would be more than offset by reductions in benefits in the future.

I don't intend to imply that the transition will be painless. At some point the SS surplus will be depleted, and the government would have to raise taxes, cut benefits or borrow money. Perhaps for some period after private accounts have replaced SS, SS taxes will still be deducted from paychecks to pay down a SS debt incurred during the transition.
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