Created in 1935, Social Security has helped to protect millions of workers from poverty in their senior years, but demographic realities have changed over the past 70 years and are still changing. If Social Security doesn't change with them, the system will be unable to meet its promises to tomorrow's retirees and will burden the next generations, our children and grandchildren, with backbreaking taxes.

President Bush would let Americans save some of their Social Security taxes in personal retirement accounts (PRAs) that they own and that Congress can never legislate away. PRAs would strengthen Social Security by helping all Americans to increase their retirement income and pass on a nest egg to build a better economic future for their families.

Is Social Security in crisis?
Social Security's financing is certainly in dire straights. The amount promised in benefits is far more than the system can afford to pay. In 2017--just 12 years from now--Social Security will pay out more money than it takes in. This difference will have to be made up by dipping into other government spending, raising taxes, or cutting benefits. Over the next 75 years, Social Security faces a $27 trillion shortfall.

The real crisis is that Social Security's high taxes prevent too many families from accumulating savings. Just as bad, the return that most workers get on the money they pay into Social Security is abysmal. Raising taxes to fund Social Security--which some propose as an alternative to real reform--would just make this savings crisis worse.

But won't the Trust Fund pay for benefits?
No. Tomorrow's workers will pay for tomorrow's benefits because Social Security is a pay-as-you-go program.

There is no money in Social Security's Trust Fund. For years, Social Security has taken in more money than it has paid out; but instead of saving these surpluses, the government spends them and writes the Trust Fund an IOU, a special-issue government bond. When Social Security cashes in these IOUs to pay benefits, starting in 2017, the money still has to come from somewhere--cutting other spending, raising taxes, or slashing benefits. Remember, this starts in just 12 years. Personal accounts directly address the trust fund problem. The government can tap into the Trust Fund today when it needs money, but it would not be able to take money from worker's own personal accounts.

Can we fix Social Security by making small changes to the current system?
No. Social Security's shortfall is so big that small changes don't cut it. Some say, for example, that we should raise payroll taxes just enough to make the system solvent, but this would have a major impact on average workers' household budgets and would cost hundreds of thousands of jobs, slow the economy, and take a bite out of household savings. Even worse, because of the way the Trust Fund works, higher taxes probably wouldn't fix the problem and wouldn't take future tax hikes off the table.

Would rolling back the Bush tax cuts fix Social Security?
No. Repealing the Bush tax cuts would do nothing to address Social Security's costs, which are set to explode in coming years. The Bush tax cuts spurred job creation, which increased payroll tax revenues, thereby delaying the date that Social Security's cash flow goes negative and the Trust Fund runs dry. They actually improved Social Security's long-term balance sheet. Repeal would make things worse.

Does reform mean lower benefits?
No. A reform plan that creates personal retirement accounts could actually pay more in benefits than today's Social Security. Under the current system, benefits are not guaranteed and, according to the program's trustees, will be cut by 27 percent in 2041, when the Trust Fund runs dry. That's what happens under current law if we do nothing.

There are two parts to Social Security reform. First, reform should bring benefits in line with what the system can afford to pay. Second, personal retirement accounts would allow younger workers to enjoy benefits in retirement that are greater than today's Social Security will be able to pay in 2042 and beyond. PRAs would also give low- and middle-income workers a chance to build nest eggs to pass on to their children or grandchildren.

Are personal accounts risky for inexperienced investors?
No. Under the President's plan, account holders could choose from among several safe investment choices, such as a broad stock and bond funds. Accounts would be invested automatically in a lifespan fund unless a worker expressly asked to choose among funds. Lifespan funds adjust a worker's investments as he or she ages. For younger workers, a lifespan fund would invest primarily in stock index funds. As these workers grow older, their lifespan funds would gradually and automatically shift more money into bonds. In short, lifespan funds allow younger workers to take advantage of the higher returns that stock investments offer while ensuring that the portfolio gets safer as the worker gets closer to retirement.

Would reform cut current retirees' benefits or the benefits of those near retirement?
No. The President has said that current retirees' benefits would be untouched. Social Security has enough money now to pay for current retirees' benefits, and most reform proponents agree that it wouldn't be fair to change the benefits of those who depend on Social Security or are near retirement.

Can we really afford personal accounts?
Yes. In terms of finance, the costs of doing nothing are far higher. Transition costs are like refinancing your mortgage—paying an upfront cost to save money in the long run. Setting up personal accounts could cost a few trillion dollars—a lot of money but still far less than Social Security's expected $27 trillion shortfall, which reform would wipe out. Every year that reform is delayed increases the cost of fixing Social Security's finances.

In terms of Social Security's savings crisis, we can't afford not to act. Too many Americans are unable to put money aside for their future and their families after paying Social Security taxes. Giving low- and middle-income workers the chance to build nest eggs and accumulate savings in their communities is too valuable to pass up.