CNN Fact Check: Bush on Social Security

PERSONAL/PRIVATE ACCOUNTS

Claim: "One way for a younger worker to come closer to what the government has promised is to be able to take a portion of the money and get a better rate of return on your own money than that which the Social Security system gets."

CNN Fact Check: The president implies that a "personal" or private retirement account will "get a better rate of return" than the current Social Security system, but he doesn't clarify the risk of getting a lower return or even losing money on the investments.

Historically, returns from private investments have outpaced those of Social Security, but there is no guarantee that a worker will always receive a higher return with a private retirement account than under the current system.

The administration generally estimates that the Social Security system generates about a 3 percent return.

A worker with a private savings account whose investments exceed a 3 percent return would be better off under the Bush plan. But a worker who experienced returns of less than 3 percent would have less retirement money than he or she would under the current system.

The federal Thrift Savings Savings Plan, which is the basis for Bush's private account plan, contains funds that generally have increased over time and outpaced Social Security, but have also posted losses in some years.

Bush does suggest there are some risks involved, though he doesn't say it explicitly: "Right now your money is making very little compared to what you can get from conservative stocks and bonds and investments. I'm talking conservative. I'm not talking the lottery or taking it to the track."

SUPPLEMENT OR REPLACEMENT?

Claim: "It's your money, and the interest off that money goes to supplement the Social Security check that you're going to get from the federal government. Personal accounts is an add-on to that which the government is going to pay you. It doesn't replace the Social Security system. It is a part of getting a better rate of return to come closer to the promises made."

CNN Fact Check: The statement is misleading. The president says the money from the private account is an "add-on" to the traditional plan, which implies that a retiree under this plan would receive the same check he or she would normally get under the current system, and additional money from a private account. That is incorrect.

It is true that a retiree who opts for the private account plan would essentially receive two Social Security checks each month: one from the traditional plan (which the president refers to as "the federal government") and a second from the private account. But the check the retiree would receive from the federal government would be smaller than if the retiree had stayed in the traditional system.

INHERITING FUNDS

Claim: "You can pass that money [from a private account] to whomever you want."

CNN Fact Check: That is only partially true. The president does not mention that only part of the money in a private retirement account can be passed on to others as an inheritance.

Under Bush's proposal, a portion of the funds in a private account may be set aside by the government and paid back to the retiree in the form of an annuity.

Any remaining funds in the private account, if any, can be spent by the retiree or passed on as an inheritance, but the annuity itself cannot be inherited. In a briefing February 2, a senior administration official said, "We specifically say that the money that is not annuitized can be left as an inheritance ... The annuity part would not come back, but the rest could be inherited."

$11 TRILLION DEFICIT?

Claim: "If we don't act, we're looking at about an $11 trillion hole for the American taxpayer coming up. This is a big liability not for me or baby boomers ... but if you're a young worker, you've got a problem."

CNN Fact Check: The president incorrectly suggests that the young workers of today will face an $11 trillion Social Security shortfall if the program continues on its current course.

The annual report from the Social Security Trustees says the projected Social Security shortfall over the next 75 years is about $3.7 trillion, a significant amount, but considerably less than $11 trillion.

The $11 trillion figure that President Bush uses also comes from the annual Social Security Trustees report, but that figure estimates the shortfall over the "infinite" future.

Accountants sometimes make financial projections over what's called an "infinite horizon" to gauge the financial effect of a program over the very long term. The trustees' report essentially says the program faces an $11 trillion deficit over the infinite future, but that the shortfall in 75 years will be significantly less than that.

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