Social Security should not be reformed or "saved" for its own sake, but only if the revised system more effectively provides the benefits workers need at a price they can afford. However, just calling legislation a reform does not necessarily mean that it actually is one.

The seven principles described below outline how real Social Security reform would both resolve Social Security's problems and provide workers with greater retirement security. Legislation to establish Social Security personal retirement accounts that meets these seven "tests" would provide Americans with a more secure standard of living in retirement.

1. The benefits of current retirees and those close to retirement must not be reduced. The government has a moral contract with those who currently receive Social Security retirement benefits, as well as with those who are so close to retirement, that they have no other options for building a retirement nest egg. If the benefits of younger workers cannot be maintained given the need to curb the burgeoning cost of the program, then they should have the opportunity to make up the difference by investing a portion of their Social Security taxes in a personal retirement account.
    
2. The rate of return on a worker's Social Security taxes must be improved. Today's workers receive very poor returns on their Social Security payroll taxes. As a general rule, the younger a worker is or the lower his or her income, the lower his or her rate of return will be. Reform must provide a better retirement income to future retirees without increasing Social Security taxes. The best way to do this is to allow workers to divert a portion of their existing Social Security taxes into a personal retirement account that can earn significantly more than Social Security can pay.
    
3. Americans must be able to use Social Security to build a nest egg for the future . A well-designed retirement system includes three elements: regular monthly retirement income, dependent's insurance, and the ability to save for retirement. Today's Social Security system provides a stable level of retirement income and does provide benefits for dependents. But it does not allow workers to accumulate cash savings to fulfill their own retirement goals or to pass on to their heirs. Workers should be able to use Social Security to build a cash nest egg that can be used to increase their retirement income or to build a better economic future for their families. The best way to do this is to establish, within the framework of Social Security, a system of personal retirement accounts.
    
4. Personal retirement accounts must guarantee an adequate minimum income . Seniors must be able to count on a reasonable and predictable minimum level of monthly income, regardless of what happens in the investment markets.
    
5. Workers should be allowed to fund their Social Security personal retirement accounts by allocating some of their existing payroll tax dollars to them. Workers should not be required to pay twice for their benefits--once through existing payroll taxes and again through additional income taxes or contributions used to fund a personal retirement account. Moreover, many working Americans can save little after paying existing payroll taxes and so cannot be expected to make additional contributions to a personal account. Thus Congress should allow Americans to divert a portion of the taxes that they currently pay for Social Security retirement benefits into personal retirement accounts.
    
6. For currently employed workers, participation in the new accounts must be voluntary. No one should be forced into a system of personal retirement accounts. Instead, currently employed workers must be allowed to choose between today's Social Security and one that offers personal retirement accounts.
    
7. Any Social Security reform plan must be realistic, cost-effective and reduce the unfunded liabilities of the current system. True Social Security reform will provide an improved total retirement benefit. But it should also reduce Social Security's huge unfunded liabilities by a greater level than the "transition" cost needed to finance benefits for retirees during the reform. Like paying points to obtain a better mortgage, Social Security reform should lead to a net reduction in liabilities.

David C. John is Research Fellow in Social Security and Financial Institutions in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.