A look at changes to Social Security, which President Bush discussed Wednesday night in his State of the Union address.

OVERVIEW:

Bush is proposing to restructure the nation's retirement system to allow workers under age 55 to divert a portion of their Social Security payroll taxes into individual investment accounts in exchange for lower guaranteed future benefits.

Workers could invest this money, limited to $1,000 for the first year, in stocks and bonds in hopes of earning higher returns. There will be no change in the current system for those born before 1950 — meaning people who now are 55 and older.

PURPOSE:

Social Security is currently running a surplus, with more money coming in than is being paid out in benefits. This dynamic will start to change once the post-World War II baby boom generation begins retiring in a few years.

The Bush administration estimates that the system will start running a deficit in 2018. The nonpartisan Congressional Budget Office says that will happen in 2020.

The president's plan would help ease the future flow of red ink by reducing the total amount of benefits the government has to pay out, but the proposal would not totally close the gap.

WHO COULD SIGN UP:

Any worker born in 1950 or after. The accounts would be voluntary. A worker could decide to remain in the current system, but would not be guaranteed the same benefit levels as current retirees or those born before 1940.

Participation in the plan would be phased in over three years, based on the age of the work force. It would begin in 2009, for those born in 1965 and earlier.

INVESTMENT OPTIONS:

The accounts would be administered publicly. Investment choices would be limited.

The accounts would be modeled on the current Thrift Savings Plan for federal workers, in which there are five investment options, all mutual funds. One holds stocks of large companies; a second holds stocks of small companies; a third holds international stocks. All would be broadly diversified.

The remaining two funds are bond funds. One has corporate bonds and the other has Treasury bonds yielding the same amount as the bonds where Social Security funds are now deposited.

A person could hold a mix of the funds.

A sixth fund also is envisioned, where the ratio of stocks to bonds would change as a worker got older, with the bond portion increasing and the stock portion decreasing.

AMOUNTS THAT COULD BE CONTRIBUTED:

Workers could divert about two-thirds of their retirement taxes into personal accounts — as much as 4 percentage points of the 6.2 percent in individual withholding — but they would be guaranteed fewer benefits.

For the first year, the total could not exceed $1,000. This cap would rise by $100 a year. Eventually, there would be no cap, beyond the 4 percentage point limitation. Currently, Social Security taxes reach a ceiling when and if a worker reaches $90,000 of income.

MIX OF BENEFITS:

Workers would continue to get traditional benefits from the Social Security system because the private accounts would represent only a percentage of benefits. Benefit levels in the future from the traditional portion of the plan could not be guaranteed in advance.

FINANCING THE TRANSITION:

The government probably would borrow money to pay benefits during the transition to where personal accounts are fully phased in. The administration has yet to spell this out.

Independent estimates have ranged as high as $2 trillion, although the administration puts the figure at about $750 billion. The administration has not discussed possible benefit cuts for future retirees to close the gap between what the system takes in and will have to pay out.

ADVANTAGES:

Over the long haul, individuals can expect to earn higher returns by investing in stocks, or a mix of stocks and bonds, than from what is generated now by the low-yielding Treasury bonds held by the Social Security trust fund. Also, the accounts would be individually owned, and could be passed along to heirs — with certain exceptions.

RISKS:

Treasury bonds are virtually risk free; stocks and corporate bonds are not. Prolonged periods of market decline or lack of growth could eat into one's retirement assets.

LIMITATIONS:

Nothing could be withdrawn from the personal accounts before retirement, nor could money be borrowed from them.

If the flow of total benefits coming from both traditional Social Security payments and withdrawals from personal accounts dropped the retiree below the national poverty level, money from the personal accounts would have to be placed in annuities, which are investments yielding fixed payments during the holder's lifetime. However, such an annuity would not qualify to be part of an inheritance — and any funds that remained available under these annuities after death would revert to the government or annuity issuer.