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I am at similar age as you were then when you started your savings plan. I am thinking of starting my own, but it will be part of government induced private account system the government of my country created recently as the third rail in our pension system. I have strangely found myself rather interested in the US social security debate, as an admirer of the cato institute (in some matters at least).

Please answer some of my questions about it, some of whom undoubtetly sound silly to you, but as I am not an American I honestly don´t know these things, and I have not been able to find the answer for these

1. Is it optional to participate in Social Security?

2. If not why are f.e. teachers with other kind of system (if I haven´t misunderstood), and f.e. government employees in some county in Texas?

3. If so, why do so many people participate in it, when they have all these 401k´s and IRA plans awaylable?

4. Those plans are they not some form of individual private accounts like Bush is probably going to propose?

5. If you pay into such an individual account, does it reduce in any way what you get from social security in the future?

Maybe the last quistion is the most silly in your view, but I am honestly asking this if the answer to the first quistion is that it is not optional to participate in the Social security system.

That is because that is how it works in our three tired system I beliewe. If you get good enough pension from the collective investment funds, that started in the 1970´s and have been very succesful, owning over 133 billion ISK in Icelandic stocks and that only beeing around 14 % of what they own, considering that Icelanders are only just under 300 thousand, the government minimal pension drops to zero.

Similarly when the private accounts will start paying off, I beliewe the collective funds can reduce what they have to pay you in pension by some fixed ratio.

I wonder if such a system if not allready existing could help solve the solvency problem of the social security, f.e. by the government deferring the taxes from other kinds of individual accounts (like 401k´s and IRA´s) to the system?

Maybe it does not sound principled enough but the good side of it is that if some of the current systems payrole taxes are allowed to go into private accounts (f.e. what amounts to the surplus in the system), the pressure on allowing more money to be taken from the payrole taxes to individual taxes will probably increase from regular folks, and if people are also allowed to put money voluntarily into them (or 401k´s or IRA´s or what it is all called, maybe some simplification is needed) the solvency crisis of Social security will be solved by mostly making it insificnicant and hopefully eventually abandoned.

Here's a couple of comments:

Some government agencies can opt-out of Social Security for their employees, but for most of us it's mandatory. The program involves both a pension plan and disability insurance, so you can see the need to have it cover a wide range of people.

Most of the proposals for private accounts would do more or less what you described in terms of reducing the government payout by some percentage of the total return on the private accounts. Democrats, who are carefully ignoring the fact that the reductions will be LESS than the total return, so pensioners will end up with MORE, are simply running around shouting, "Bush wants to cut benefits". So far, they've been pretty effective at spreading that half-truth.

Social Security in this country is also a wealth-transfer mechanism, with many being able to draw pensions in excess of what their contributions would justify. For that reason, and because Social Security pays far less than even the most frugal person needs to live on, 401k's and IRA's are a very important part of retirement planning. So, most of us have to carry both Social Security and private (IRA, etc.)programs.