Sunday, May 2, 2004

Social Security is not going broke!
Social Security is just like any large-scale retirement plan such as those established by major corporations like GM or Pfizer, or industry groups like the Teacher's Retirement System or Railroad Retirement. That is, the Social Security Administration receives contributions from its members (FICA taxes from you and me), it invests those contributions in investments allowed by its charter, and then later pays out benefits to retirees. Most large pension plans, like the ones mentioned above, only invest about 30-60% of their assets in government debt because their charters also allow them to invest a portion of their assets in corporate stocks and bonds. The Social Security Trust Fund, on the other hand, invests 100% in U.S. government debt. This means two things (a) its returns are low because interest rates have been low for the last few years, and (b) its totally dependent on one organization for its future security. Now if you believe the U.S. government will never default on its debt, then “b” is no big deal – but, “a” is still a problem. Right now the Social Security Trust Fund should last out past 2025 (some say as far out as 2045) without any increase in Social Security taxes. However, that deadline could be extend out way further if the Social Security Trust fund was allowed to invest a portion of its assets in corporate stocks and bonds. Therefore, the way to make Social Security financially sound is by retaining professional money managers (mutual funds, insurance companies, etc.) to invest a portion of the Social Security assets in corporate stocks and bonds which would increase the return on the Trust Fund assets and extend its life at current contribution levels –it could even cause a surplus and contributions could be reduced! The problem then is that the government (made up of both Democrats and Republicans) would have to go find another source to to buy its debt so it can overspend (“deficit finance”) every year– but that's another discussion!

By Ray Darnell at 7:57 PM | Permalink
Category: Health and Retirement Care | Comments (0)