Paul Ryan Social Security Plan Calls For Private Accounts (VIDEO)

WATCH: Ryan Describes His 2005 Plan For Social Security

WASHINGTON - Mitt Romney's choice of Paul Ryan as his running mate has already reignited the debate over the future of Medicare. Ryan has proposed ending the guaranteed benefit and instead giving individuals vouchers to pay for private insurance, which Ryan refers to as "premium support." By reducing the amount of money that Medicare would pay out over time, the plan reduces its long-term costs in an effort to become solvent without raising taxes or lowering health care costs. But it leaves seniors on the hook should costs rise faster than the value of the vouchers.

It's a proposal strikingly similar to his suggested Social Security reform in 2005, which also relied on shifting risk from society at large to the individual.

Ryan, in a March 2005 interview on C-SPAN, described his Social Security plan in detail. His bill would have allowed people under 55 to divert roughly half of their payroll taxes away from the traditional program and into a private account "owned" by the individual but managed by Social Security, and invested in stocks and bonds. But that plan did not cut any benefits, but brought such an astronomical price tag that the Bush administration called it "irresponsible."

"Individuals own their own retirement accounts that are invested in markets and stock and bond indexes and things like that," Ryan said of his plan. "The system is off the hook to pay you that part of your benefit from those dollars, because you're going to get that benefit out of your personal retirement account. Because the system's off the hook to pay you that benefit, the system reduces its expenditures by that amount, that helps bring the system into solvency."

Ryan said his plan would work to guard against wild swings in the stock market by moving people out of stocks and into government bonds as they approached retirement.

Earlier that year, Ryan said, he had held dozens of town halls in his home district in Wisconsin, and found opinion split on private accounts. But across the country, voters were turning strongly against Bush's privatization plan, and Republicans were insisting that their proposal had nothing to do with privatization.

"What we're talking about here is not privatizing Social Security or even partially privatizing Social Security," Ryan said.

Rebranding privatization as the creation of "personal retirement accounts," however, did little to boost the reform's popularity, and the notion has since been shelved as a mainstream proposal.

Personal Choice in Retirement Accounts. Beginning in 2012, the proposal allows each worker younger than 55 to shift a portion of his or her Social Security payroll tax payment into a personal retirement account, chosen from a group of investment funds approved by the government (see below). When fully phased in, the personal accounts will average 5.1 percentage points of the current 12.4-percent Social Security payroll tax.

The personal investment component is phased in to allow a smooth transition. Initially, workers are allowed to invest 2 percent of their first $10,000 of annual payroll into personal accounts, and 1 percent of annual payroll above that up to the Social Security earnings limit. The $10,000 level will be indexed for inflation. After 10 years, the amount that workers can invest will be increased to 4 percent up to the inflation-adjusted level, and 2 percent above that. After 10 more years, these amounts will be increased to 6 percent and 3 percent. Eventually, by 2042, workers will be able to invest 8 percent up to the inflation-adjustment level, and 4 percent of payroll above that, for an account averaging 5.1 percent.

The choice of personal retirement accounts is entirely voluntary. Even those under 55 can remain in the current system if they choose. Further, those who choose to enter the personal account system also have an opportunity to leave the system, and those who initially opt out of the system of personal accounts can enter into it later on.

This post has been updated to include additional information about Ryan's 2005 proposal for private accounts.

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