Marty Feldstein on Social Security and personal accounts

Harvard Professor Martin Feldstein writes on Social Security reform and personal accounts over at the Wall Street Journal.

Even Mr. Obama accepts the inevitability of lower future Social Security benefits. In his budget speech last month, he reiterated his State of the Union language indicating a willingness to negotiate lower future benefits. After noting that Social Security "faces real long–term challenges in a country that is growing older," he said that future changes must be made "without putting at risk current retirees, the most vulnerable, or people with disabilities; without slashing benefits for future generations; without subjecting Americans' guaranteed retirement income to the whims of the stock market."

Those words, if read carefully, imply that Mr. Obama accepts reducing future Social Security benefits as long as current retirees and the "most" vulnerable are exempted and benefits are reduced gradually (not "slashed"). And while the Social Security taxes are not to be invested in the stock market, some form of universal add-on investment based account is clearly not precluded. This is not fundamentally different from plans developed by Presidents Bill Clinton and George W. Bush: exempt current retirees, reduce future benefits gradually, and supplement tax-financed Social Security with investment-based accounts.

In short, while slowing the growth of Social Security is a necessary response to the changing age structure, it is possible to do it in a way that protects overall retirement incomes by creating universal supplemental personal retirement accounts that generate an annuity for retirees.

Check it out here.