From MSNBC:

Social Security formula weighed

Bush plan would cut promised benefits

By Jonathan Weisman and Mike Allen
Updated: 11:11 p.m. ET Jan. 3, 2005

The Bush administration has signaled that it will propose changing the formula that sets initial Social Security benefit levels, cutting promised benefits by nearly a third in the coming decades, according to several Republicans close to the White House.

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Under the proposal, the first-year benefits for retirees would be calculated using inflation rates rather than the rise in wages over a worker's lifetime. Because wages tend to rise considerably faster than inflation, the new formula would stunt the growth of benefits, slowly at first but more quickly by the middle of the century. The White House hopes that some, if not all, of those benefit cuts would be made up by gains in newly created personal investment accounts that would harness returns on stocks and bonds.

But by embracing "price indexing," the president would for the first time detail the painful costs involved in closing the gap between the Social Security benefits promised to future retirees and the taxes available to fund them. In late February or March, the administration plans to produce its proposed overhaul of the system, including creation of personal investment accounts and the new benefit calculation.