Under Sen. Hagel’s measure (S.540), Social Security would not change for anyone over the age of 44. Americans under the age of 45 could voluntarily contribute 4% of their portion of the Social Security payroll tax into personal retirement accounts. The measure offers a guaranteed minimum benefit for all Americans. Survivor and disability benefits would not be affected.
Sen. Hagel’s measure does not raise taxes. It achieves Social Security solvency over the next 75 years by raising the retirement age from 67 to 68, reducing early retirement benefits from 70% of the traditional benefit to 63%, and by factoring life expectance into the calculation used to determine traditional benefits.
| Voluntary |
Yes, for every worker under age 45 by 2006. |
| Account Size/Source |
Carve out: 4% of taxable earnings. |
| Additional Contribution |
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| Benefits from Current System |
The traditional benefits would be offset by the hypothetical payments from an annuity, purchased by the account contributions accumulated at 3% real interest rate. This annuity used for calculations would be a CPI-indexed life annuity that uses unisex mortality rates. |
| Investment Structure |
A Central Administrative Authority (CAA) would administer individual accounts. Investment options would be same as the ones being currently offered by TSP, with the possible addition of a life cycle fund. |
| Inheritability |
Account balance would be transferred to surviving spouse's account. If the worker has no spouse, the assets would pass to worker's estate. |
| Withdrawal Options |
CPI-indexed life annuity would be available (joint and survivor annuity available for married couples) by the CAA. Workers will be required to use enough of their personal account to purchase an annuity which when added to their traditional benefits will equal no less than 135% of the poverty level. |
| Minimum Benefit |
Will provide a guarantee. |
| Changes to Benefit Formula |
For individuals attaining age 62 in 2024 and later, retired worker and aged (surviving) spouse benefits would be based on a modified PIA reflecting adjustments for increasing life expectancy. |
| Retirement Age |
~For all individuals attaining age 62 in 2023 and later, the normal retirement age will be 68. Early retirement age would stay the same. ~ The percentage of the basic benefit level payable to workers retiring at 62 would be 65.5% instead 70%, which is the current level.~Increase early retirement reduction factors and delayed retirement credits.
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| Other Benefit Changes |
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| Disability/Survivors |
No changes. |
| Transition Funding Mechanism |
General revenue transfers |
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