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How Would Money Be Paid Out of Individual Accounts?

Discussions of private accounts in Social Security have focused on how money would build up in the accounts. Yet questions about how money would be paid out of the accounts have been largely neglected. A 2005 NASI report, Uncharted Waters: Paying Benefits from Individual Accounts in Federal Retirement Policy, represents two and a half years of work by a non-partisan panel of 27 experts on retirement accounts and Social Security. It addresses such questions as:

  • How much access would retirees have to their account funds? Would they be allowed to take lump sums when they retire, or would they be required to buy annuities—insurance contracts that guarantee monthly payments for life?
  • If annuities were required, who would design, market and sell them? Who would regulate the providers? Who would guarantee the payments in the case of annuity provider failure?
  • Would people be allowed to withdraw funds or borrow against the personal accounts before retirement age, as they can now with 401(k) savings plans? Do the answers change if the worker becomes disabled or dies before retirement?
  • If workers shift part of their Social Security taxes to private accounts, how would the Social Security trust funds be compensated for the loss of revenue?
  • What rights would a spouse or former spouse have to the accounts? Would accounts be divisible property at divorce? Would spousal rights be decided in federal law or in family law that differs from state to state?

The questions are explored in depth in the Panel's final report.

For more information, see: