Can do-it-yourself Social Security close the funding gap in the nation's retirement system? That's the premise President Bush is pushing in his call for bold reforms that would include private investment accounts managed by workers.

But a close analysis shows that the gap would be addressed mainly by steep cuts in benefits to future retirees, and the private accounts probably wouldn't make up the lost ground. Anyone under 55 likely would be affected, and some of today's youngest workers could see their Social Security checks cut by nearly a quarter.

To be sure, any proposal could prove a tough sell, and not just because future retirees might not like it. The plan would carry a huge upfront price-tag in transition costs that could make the record budget deficit even worse and thus draw political fire from both sides of the aisle. Opponents, including the still-powerful AARP and many Democrats, have already lined up against the idea. And many critics dispute that the system even needs a drastic fix.

The president, though, says the system is in crisis, pointing out that Social Security is projected to run out of money to pay full benefits around the middle of the century. That's because there are fewer workers contributing to the system, compared with retirees drawing from it, than in decades past. The imbalance will grow as more Baby Boomers retire.

"A 20-year-old worker today is being promised retirement benefits that are 30 percent higher than the system can pay," Bush said at the White House Economic Conference last month. "This problem has got to be confronted now."

Details remain sketchy, but so far Bush has made one thing clear: The plan wouldn't affect current retirees or those near retirement age.

The president's plan is expected to draw upon the recommendations of the bipartisan 2001 President's Commission to Strengthen Social Security. It suggested changing the formula upon which initial benefits are calculated, which would cut the traditional, guaranteed Social Security benefit. On top of that, it would allow workers to divert part of their payroll taxes to private accounts, which they could invest in the stock market in hopes of greater returns than they'd get from Social Security.

A retiree's initial benefit now is based in part on the overall growth in wages during his or her working years. The proposal calls for basing the initial benefit on the inflation rate. Since inflation has historically grown much slower than wages, the change would save the system trillions of dollars in benefits and make it solvent. But it would reduce the guaranteed benefit for future retirees.

Substantial cuts possible

For some of today's workers, the cut could be substantial. A typical 48-year-old who retires in 2022 would see nearly a 10 percent drop in guaranteed benefits, according to the commission's plan. Today's 18-year-olds would suffer a 32.5 percent hit when they reach age 65 in 2052. For those retiring in 2075, the guaranteed benefit falls by 45.9 percent.

"While it's a way to get at the problem, it is really very bitter medicine," said William Novelli, chief executive of AARP, which recently launched a $5 million ad campaign against Bush's overhaul.

The second part of the proposal would allow workers to divert up to 4 percentage points of their payroll taxes, capped at $1,000, to private accounts. People could invest in a limited number of choices, such as a stock index fund, a bond index fund and a government securities fund.

By allowing workers to control part of their Social Security benefit, they might reap higher returns in the stock market, supporters say. A portfolio equally divided between stocks and bonds would provide an annualized return of 4.6 percent, the commission said.

"We will have to reduce benefits to something closer to what Social Security can afford," said David John, research fellow at the Heritage Foundation, which advocates for privatization. "But with a personal retirement account, a young person will have the opportunity to make up at least some of the difference."

Vinny Scicchitano, 47, would love to invest his Social Security taxes, even if it means a lower guaranteed benefit. An active investor, the Nesconset resident is confident he could achieve high enough returns to end up giving him a larger check when he retires. "I'd rather have the money in my hands to be able to make some of my own investment decisions," said Scicchitano, a Vytra Health Plans senior vice president.

But critics say that, even when the money invested in private accounts is included, the new benefits formula would leave many people unable to keep up their standard of living. For instance, Social Security today replaces about 40 cents out of each dollar of a typical worker's income in the first year of retirement. Under the proposal, that figure would fall to just 21.7 cents for someone retiring in 2065, says the Congressional Budget Office.

Supporters of the plan say the CBO is too conservative, and note that the Social Security commission assumed higher investment returns. But even the commission's figures show future retirees would not get the same benefits as under today's system.

And not everyone wants their Social Security benefits to depend on unpredictable stock market returns. "It makes me kind of nervous that something that should be set may not be set," said Erin Tenenbaum, 51, a West Islip resident who works for the U.S. Postal Service, noting she has other money in the stock market. "I didn't think Social Security was something I had to worry about."

Frederic Stark, 36, who would face about an 18 percent cut in guaranteed benefits, said he wasn't counting on Social Security to fund his retirement, but he still feels he should get the amount promised to him when he joined the work force. "I have a problem with changing the rules in the middle of the game," said Stark, an Oceanside resident and a Hewlett High School teacher.

The system now can pay full benefits until either 2042 or 2052, according to the Social Security trustees and the CBO, respectively. Critics say Bush is exaggerating the size and immediacy of Social Security's problems, pointing out that robust economic growth could extend the system's solvency.

What's more, they say the new plan would undermine a basic tenet of retirement planning: having a guaranteed income stream from Social Security as a safety net to supplement income from a private pension and ordinary savings. "The plan really eliminates much of the protection Social Security afforded retirees," said Laurence Kotlikoff, economics professor at Boston University.

There are other risks, too. As 401(k)s have shown, some people take on too much risk while others put everything in ultra-conservative investments, leaving them far short of their retirement needs. If the market plunges just as people retire, they could wind up receiving much less than anticipated.

Critics argue there are less-radical ways to fix the system. Among the suggestions: raising the cap on wages subject for Social Security contributions, currently $90,000; reducing benefits for the highest earners, and including all newly hired state and local government workers in the program.

"People should take risks with their own private savings for retirement," said Lee Price, research director for the Economic Policy Institute, which opposes privatization. "Social Security was never designed, nor should it be designed, to add to those risks."

Q&A

Here's what a Social Security overhaul could mean to you.

I'm already retired. Is this going to cut my benefits?

No. It should affect only those age 55 and under.

How does the idea work?

The traditional guaranteed benefit would be cut on a sliding scale tied to your age and income; the younger you are, the bigger the cut.

Part of the cut in guaranteed benefits could be made up by greater returns in the stock market.

The plan would allow you to invest up to 4 percentage points of your payroll tax.

How big a cut in benefits will this mean for today's workers?

For the typical worker born in the 1950s, the lifetime benefit would be trimmed 1.2 percent, according to Congressional Budget Office estimates.

Those born in the 1970s would see a 14 percent cut. If you were born in this century, your benefits would be slashed 37 percent.

Those figures include what you'd get from both the guaranteed benefit and an estimate of what you'd earn in your private account.

Do I have to do this? Can they force me to invest part of my Social Security taxes in the stock market?

No, but then you could see a smaller monthly check after you retire.

Can I invest in any stock or mutual fund?

Probably not.

Your choices would likely be limited to a handful of stock and bond index funds and a short-term government securities fund.

With broad, diversified funds, risk is minimized.

How benefits might be cut

President Bush is expected to model his Social security reform after a proposal from his 2001 Social Security reform commission that would cut benefits for future retirees.

How soon will the money run out?

Social security trustees and congressional experts disagree on when the system will run out of money. Their estimates:

Year in which payouts of benefits exceed tax revenues

Social Security trustees - 2018

Congressional Budget Office - 2019

Year in which trust fund is exhausted

Social Security trustees - 2042

Congressional Budget Office - 2052

SOURCE: SOCIAL SECURITY ADMINSTRATION; CONGRESSIONAL BUDGET OFFICE

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