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Feasibility of Social Security Individual Accounts

Concerns about the long-term solvency of Social Security have produced numerous options for Social Security reform, among them individual accounts (SSIAs) that would allow individuals to manage their own retirement savings. Frequently, individual account proposals have consigned administration to a format that resembles the Thrift Savings Plan for Federal employees (TSP).

In this AARP Public Policy Institute Issue Paper, Frank Cavanaugh, former Executive Director of the TSP, examines the feasibility of these proposals and finds that a system of individual accounts cannot easily be adapted to the TSP format. Nor would it be a low-cost option. The paper focuses on the impact of administrative expenses on SSIA balances, the capability of small businesses to perform the functions normally performed by 401(k) employers, and the efficiency of SSIAs compared to similar investments in the Social Security trust fund. (20 pages)