All of these premises are fundamentally flawed. First of all, there will certainly be limitations on the types of investments an individual make - one would not, for instance, be permitted to invest entirely in Russian oil companies or Chinese emerging companies. Furthermore, many Americans have enjoyed handsome returns on investments made through 401Ks and IRAs for decades. Finally, there are plenty of mutual funds, index funds and combinations of investments that provide a level of comfort to the risk averse and, most importantly, anyone who chooses to completely reject personal accounts is free to remain in the existing Social Security program.

Or course we know that the stock market has some risk associated with it. Over the average career, however, 35-40 years, that risk is mitigated. It is a fact that over the long term, a well-thought out investment in the stock market will yield returns beyond most people's expectations.

As for steep Wall Street fees, strict controls can be put in place to guard against exorbitant fees. Several existing mutual funds are known for their excellent returns and razor-thin fees. As a matter of fact, the government can easily limit the amounts a participating investment company can charge in fees for PAs.

The answers to the two final questions are the most interesting:

• What happens when a market crash occurs? Do PA investors stand a chance of losing all or most of their money?
• Is Social Security really a successful program?

We have set up a scenario below that compares the existing Social Security program with a hypothetical PA plan. Let's walk through it now.

Our time frame is from 1960 through 2003 - a 43-year period that saw its share of booms and more than a few busts. For the purposes of simplicity, our analysis is limited to a comparison of the Social Security "status quo" and a fictitious Personal Account Program in which we invested the entire amount in the S&P 500 Index of stocks. Today, index funds exist for all the major indices and we chose the S&P 500 because it is broad-based, covering virtually all industries and because it has a lengthy and documentable history.

[Note: These are actual numbers taken from the historical records on file with the Social Security Administration and from the SBBI Yearbook - Market Results for 1926-2002. Information for 2003 was taken directly from the Standard & Poors website.]

If you were 21 in 1960, and started working and paying into Social Security, you might have retired at the end of 2003, at age 65. If your employer paid the maximum Social Security tax amount each year on your behalf, you would receive $20,268 per year in Social Security benefit payments.

On the other hand, your Personal Account would be worth $1,305,772. After retirement, if you kept that amount invested at a modest 6% return, you would draw an annual "benefit" of $78,346 to live on -- without ever touching the principal. Under this scenario, following your death, you would be in a position to leave $1.3 million to your heirs - be they children, other relatives, friends, or charities or - yes, even Fido and Fluffy!

Should you become risk averse in your post-65 years, you might consider using all or part of your $1.3 million nest egg to buy annuities from one or more insurance companies.

(Note that annuities guarantee payments for the life of the insured, but place limitations on the ability of named heirs to inherit funds not paid out to the insured.) Currently, a 65 year-old man with a 65 year-old wife could get an annuity payment of about 6.7% of the $1.3 million per year until the death of both spouses - that amounts to over $87,000 per year.

Now, that's some risky scheme!

We used a simple Microsoft Excel Spreadsheet to calculate the value of your S&P 500 investment. Our calculations are based on actual past data, and not on future projections. We use the actual returns for the S&P 500 for the 43 years between 1960 and 2003 and made the following assumptions:

• Your income was at least equal to the Social Security Base Wages in every year.
• You invested the full Social Security tax amount that was paid by your employer on your behalf in the S&P 500 each year from 1960 to 2003.
• The investment includes both the payment "deducted" from your wages and the amount paid "directly" by your employers. Your employer would have paid both of these amounts to the Social Security Administration on your behalf. The only difference between the two amounts is that your employer must print one of these amounts on your pay stub and omits the other.
• Your spouse paid or invested zero. If your spouse paid the same Social Security taxes as you did, or invested the same amounts in her own Personal account, both the values of your Social Security benefit and your S&P investment would double.

Clearly, you'd be one happy 65-year old if you had gone the personal investment route at age 21.

Now, lets address the concern that a market crash could cause an investor to lose all or most of his retirement money - we actually have a very real and very recent example of a three-year market downturn.

From the end of 1999 to the end of 2002, the S&P 500 went down approximately 35%. Your Personal Account balance would have actually declined from $1,564,137 at the end of 1999 to the $996,830 at the end of 2002. Again, invested at a modest 6%, you would still draw an annual benefit of $59,808 - almost three times what you would be receiving from the existing Social Security program.

(This actually represents an almost worst-case scenario because those three years that saw the most significant decline in the S&P 500 occurred when you had the most money invested. If those declines had occurred earlier, you would most certainly be better off. In any case, your annual draw of almost $60,000 is a far cry from the $20,268 you would receive under the existing Social Security program.)

But in 2003 the market recovers. If you had kept your money invested In the S&P through the 1999-2002 period, you would have made a lot of your money back in 2003.

Those are the numbers, folks….40+ years of them - the PA scenario is hypothetical - the numbers are real!

This article began with several questions about the wisdom and efficacy of introducing Personal Accounts as a component of Social Security. After researching the performance of Social Security vs. the stock market, several new questions arise: · Can we still look at Social Security as a "successful" government program? · Is it really a program we want to perpetuate? Can our children afford to sustain the status quo? · Should they be asked to do so given the returns available to them in alternative programs?

Some might disagree, but these two fifty-plus Baby Boomers would have given our eye teeth to opt out of Social Security years ago and sock our cash and employer contributions into personal investment accounts that offered investment choices similar to those offered under 401-K accounts. To be frank, we consider it a stroke of luck that the 401-K was introduced mid-way in our respective careers, because our Social Security benefits are moving farther and father away from us as each year passes. If we were 21 now and just starting out, we'd jump at the opportunity to privatize even a small part of Social Security.

Henry Ford invented the automobile around 1913 and, while the Model T has since gone the way of the dinosaur, the automobile has come long way, baby -- and consumers have come to expect nothing less. Imagine where we would be today if automobiles had progressed as they have, but the government failed to improve the highway system that enables those autos to get from point A to point B!

Well, that is where we are today with Social Security. The financial vehicles exist and they are accessible to all of us - but the government is requiring that we stay with a program invented in Depression-era America. It surely provided a modicum of comfort for our parents, but America is a vastly different place now. The government should be primarily concerned with insuring that the personal investment component of Social Security makes use of a mix of reasonably conservative investment vehicles that stand a good chance of dramatically improving our return on investment.

One incontrovertible fact is evident in our analysis: Over the long term, the stock market, wisely employed, offers the best opportunity for financial security. It should be noted that no responsible person on either side of this issue is suggesting a change in the Social Security rules for anyone at or within 10 years of retirement. Personal Accounts clearly apply to younger workers - not 50-somethings.

Furthermore, the politics surrounding the Social Security debate dictate that Americans would not be permitted to put the entire amount in an S&P 500 Index fund despite the fact that 43 years of history, through good markets and bad, have proven that this would be a sound move to make. In fact, one of the investment options ought to be the ultra-conservative mix of investments that Social Security currently uses. It should be understood, however, that one who chooses to take little or no risk will likely receive a lower benefit than one who chooses a somewhat more aggressive path.

Our elected representatives ought not to be arguing about the merits of Social Security vs. Personal Accounts. They ought to be trying to figure out a rational way to pay for the transition years and how to gradually phase in Personal Accounts so that eventually they completely replace Social Security. One way or another, we need to get Personal Accounts done. Let's not be fools and miss this opportunity - our children deserve better.