The 4% Solution

George W. Bush prides himself on keeping his focus on the big picture. But when a challenge is as tall as transforming Social Security, the details can kill you. As the President warned last week in his State of the Union address that the system is "collapsing"—an assertion many experts dispute—the White House offered the first glimpse of his most radical proposal for changing it: allowing younger workers to invest part of their payroll taxes in private accounts.

The plan that was unveiled did nothing to change the political obstacles Bush faces in Washington. Republicans are still skeptical; Democrats are still opposed. So the President took his sales pitch on the road to five conservative states represented by Democrats in the Senate. His Cabinet will fan out across the country as well. Will they succeed? That may depend on how satisfied Americans are when they get answers to their questions about Bush's idea for reforming the biggest and most popular social program ever.

HOW WOULD PERSONAL ACCOUNTS WORK?

Under the current system, workers generally contribute 6.2% of their wages to the Social Security system. Under Bush's plan, you would eventually be able to divert as much as 4% into a personal investment account that could be invested among a limited number of government-selected funds. The account could not be spent or borrowed against until retirement. At retirement, you would still get a traditional Social Security check, but it would be smaller, reflecting your diminished contribution to the system. You would also be required to commit a portion of your personal account to an annuity—to trade in the assets for a guaranteed monthly payment for the rest of your life. Your annuity commitment would have to be large enough that the monthly proceeds plus your Social Security check would keep you at least above the poverty line. Any money left over in your personal account could be used as you wished--taken as a lump sum, drawn down over time, added to your annuity or even left invested to continue growing. By most estimates, if a personal account earned annualized investment gains of 3% (after inflation was factored in), it would produce roughly the same retirement income as Social Security provides under existing rules. Investment gains above that level would give you a surplus in your private account; smaller gains would leave you with less to live on.

WHO WOULD BE ELIGIBLE FOR A PERSONAL ACCOUNT?

The accounts would be available to workers born in 1950 or later and would be phased in over three years, starting in 2009. People born in 1965 or earlier could start investing the first year; those born in 1978 or earlier could begin in 2010; and all younger workers could begin in 2011. Those 55 and older would continue to be covered by Social Security in the traditional manner.

HOW MUCH COULD I INVEST?

Initially, the amount would be limited to $1,000 annually, but according to Bush's plan, it would rise by $100 a year, to a maximum of 4% of your income.