The 4% Solution

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COULD I INVEST IN THAT REALLY HOT STOCK MY BROTHER-IN-LAW HAS BEEN TOUTING?

No. Investors' choices would be limited, much as they are under the Thrift Savings Plan now available to federal-government workers, who can invest in five broad, general funds: a large-cap stock fund, a small-cap stock fund, an international stock fund, a corporate-bond fund and a Treasury-bond fund. The government would also offer what is called a life-cycle fund, in which the mix of investments changes according to the investor's age. None of those options are particularly sexy, but because they are more diversified than individual stocks and bonds, they are less likely to suffer quick, crippling losses. They also cut down on the government's costs of administering the program.

WHAT ABOUT INHERITANCE? COULD I LEAVE THE MONEY IN MY PERSONAL ACCOUNT TO MY KIDS?

If you should die before reaching retirement, all the money would go to your heirs. If you should die after you retire, they could inherit only that portion of your personal account that had not been committed to an annuity. They would not receive any payout from the annuity.

WOULD INDIVIDUAL INVESTMENT ACCOUNTS REDUCE THE FUTURE INSOLVENCY PROBLEMS FACING SOCIAL SECURITY?

No. In the next few decades they would actually make the problem worse. That's because the money that workers would invest in their personal accounts would no longer be available to pay the benefits of today's retirees. As things now stand, Social Security is expected in 2018 to start paying out more in benefits than it brings in from payroll taxes. If individual accounts were established and no other reform was enacted, the system's finances would deteriorate even faster and the shortfall would begin six years earlier, in 2012, according to the Center on Budget and Policy Priorities, a liberal think tank whose numbers are widely respected.

Additional "transition costs"—amounting to trillions of dollars—would be incurred in the early decades. The Bush Administration argues that those costs would eventually be offset by savings in future decades, when people who invest in personal accounts begin to retire and get smaller Social Security payouts than they otherwise would receive. In the meantime, huge new borrowing would be needed to cover the gap left over by the transition. Paying back that debt would fall to the same future generations that Bush says he's trying to protect by revamping Social Security.

SO HOW WOULD BUSH FIX SOCIAL SECURITY'S LONG-TERM FUNDING PROBLEM?

That remains the big unanswered question. Everyone in Washington knows it would be political suicide to cut the benefits of today's retirees or those about to retire. Absent those options, there are only three ways to bring the system into fiscal balance: cut future benefits, raise taxes or borrow the money, which adds to the debt.