Another serious systemic problem is the declining rate of return that workers get on the tax dollars they pay into Social Security. Currently, 70-year-old retirees get about a 4.5 percent return on what they paid into Social Security, but today’s 40-year-old workers will receive only about a one percent rate of return on their Social Security payments. And today’s young children can “look forward” to a negative one percent return or worse. 

The time is ripe for lasting reform that ensures all generations - from seniors, to baby boomers, to their children and grandchildren - will be able to count on Social Security and that gives younger workers the opportunity to get a decent rate of return on their investment in the program. 

Legislation that I have introduced with New Hampshire Senator John Sununu would accomplish this, without resorting to tax hikes or benefit cuts. The key is allowing large, voluntary personal accounts for younger workers that earn better returns than traditional Social Security and, over time, cover more and more of Social Security’s financial obligations. Under our plan, the Chief Actuary of Social Security has found that permanent and growing Social Security surpluses begin in 2038 and permanent solvency is reached in 2051. It would also eliminate Social Security’s $12 trillion unfunded debt for the foreseeable future. 

During the first decade, our legislation phases in voluntary personal accounts, giving workers under age 55 the chance to divert, on average, 3.2 percent of the 12.4 percent Social Security payroll tax into a tax-free personal account. Then, starting in 2016, workers would be able to shift 6.4 percent, on average, to their account. The account structure is progressive, to help lower-income workers more rapidly build retirement savings. 

Under our legislation, workers who prefer to stay with traditional Social Security can do so. At the same time, safeguards would guide and protect those who choose to participate in personal accounts. For example, personal account holders would be automatically enrolled in a “life-cycle” fund that adjusts the owner’s portfolio depending on his or her age, shepherding near-retirees into very safe, government-backed bond funds. Workers could stick with this default option or select from a list of five index funds like those offered in the Thrift Savings Plan - a 401(k)-type plan that Members of Congress and federal employees have. 

The Social Security Administration would manage the accounts, which are backed by a guaranteed minimum benefit equal to what Social Security promises under current law. 

Everyone currently 55 or over would remain covered under the traditional system, and survivors and disability benefits would also continue unchanged under our legislation. 

To finance the transition, our plan would stop Washington’s 35-year raid on Social Security tax dollars and dedicate the Social Security surplus - projected until 2017 - to Social Security rather than other government programs. This step would help immensely, as the surplus over the next ten years, including interest, is more than enough to cover the transition cost over the first ten years of the reform. 

In addition, our legislation would slow the growth of federal spending by one percentage point a year for eight years and transfer the savings to Social Security. 

Finally, the anticipated increase in corporate tax revenue, sparked by increased investment through personal accounts, would go to the Social Security Trust Fund. 

By offering a sizable personal account option and taking the necessary steps to instill greater fiscal discipline, Congress can put Social Security on solid financial footing and make sure that future generations of retirees can count on the program being there for them, as it is for today’s seniors.