The future of Social Security is one of the most important issues that voters will decide in this years presidential election. George W. Bush has said that as president he would allow individuals to shift a portion of their Social Security payroll taxes into personal retirement accounts that could be invested in stock and bond mutual funds. Polls show that a majority of voters like the idea, but many people ask us just how it would work in practice. In this column we try to answer their questions.

Before doing so, its useful to recall why this is on the political agenda. President Clinton devoted much of his 1998 and 1999 State of the Union addresses to warning that the aging of the population means that the current payroll tax will not produce enough revenue by the next decade to finance the benefits projected in current law. After that, there is no choice in the current system but to raise taxes or cut benefits. Social Security actuaries calculate that benefits projected in current law would eventually have to be cut by one-third if the tax rate is not increased. Maintaining the projected benefits would require a 50 percent rise in the payroll tax rate, from 12.4 percent to 19 percent. Substituting an increase in the income tax for an increase in the payroll tax, as Al Gore proposes, would require the equivalent of a 25 percent rise in all income tax rates.

These undesirable changes could be avoided by augmenting the traditional Social Security program with a system of investment-based personal retirement accounts (PRAs). Such accounts can maintain retirement incomes without raising taxes because the rate of return on stocks and bonds is substantially higher than the implicit return in the traditional Social Security system. Actuaries calculate that a young person entering the work force today will receive a rate of return of only about 1 percent on his Social Security taxes. In contrast, a balanced portfolio consisting of 60 percent stocks and 40 percent bonds delivered a real after-inflation return of nearly 7 percent during the 50 years from 1945 to 1995, even before the recent sharp rise in stock and bond prices.

Which brings us back to how such a plan might work in practice. There are, of course, many details that would have to be decided by the political process. Bush has said that he would negotiate those issues with Congress, which must eventually vote on the plan. His only conditions are that there be voluntary individual accounts that could be invested in private stocks and bonds, that there be no tax increase, and that the existing program remains unchanged for those who are already retired or are nearing retirement. The goal is to use the combination of traditional tax-financed Social Security benefits and these new PRAs to maintain or exceed the retirement income projected in current law.

Since the details will have to be negotiated between the president and Congress, we can only offer our own answers to some of the key questions about how such a system might work.

How much money are we talking about? Most analysts assume that the amount that would go into each PRA would be equivalent to about one-fifth or one-quarter of the 12.4 percent of earnings now collected by the Social Security program.

For a couple with $50,000 of earnings, the annual PRA deposit would be between $1,000 and $1,500.

What restrictions would there be on the kinds of investments that individuals could make? Personal retirement accounts would be invested through mutual funds, banks, or insurance companies that are government-approved for this purpose. Equity investments would have to be broadly diversified through mutual funds.

How would the money get into the PRA? The simplest and most efficient way would be for the Social Security Administration to take a part of their payroll tax collection and send it to the investment manager that each individual selects. Individuals would designate the choice of that investment manager on their income tax return and could therefore change once a year if they wanted to do so.

What would happen at retirement? Since PRAs are part of the Social Security program, we favor requiring everyone to buy an annuity at retirement age that guarantees that benefits continue as long as they live. An average individual who contributes to PRAs from age 21 to retirement could expect that the combination of traditional Social Security benefits and the PRA annuity would be about 30 percent more than the traditional benefits projected in current law.

How would couples be treated? Current Social Security rules would presumably continue for the traditional part of the Social Security system. But for the PRA portion, each individual would have his or her own account and would receive an annuity at retirement age. If a couple is divorced, their accounts at that time could he combined and divided equally.

There are, of course, other issues that would need to be considered. And we would stress that these are just our ideas of how a plan of the sort proposed by Bush might work. But we think that this would be an excellent way of strengthening Social Security and of protecting future retirement benefits without raising payroll or if come taxes.

Martin Feldstein, the former chairman of the Council of Economic Advisers, and his wife, Kathleen, also an economist, write frequently together on economics.