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Sunday, Dec 3, 2023



It’s conventional wisdom that baby boomers won’t see a dime’s worth of Social Security benefits. Younger people assume that, by the time they’re old, the program will be dead and gone.

Not a chance, unless we deliberately decide to shoot it. Social Security needs repairs, as explained by the Social Security Advisory Council in the report it released this month. But the report also shows a system in better shape than the naysayers think.

The bubble of boomer retirements is manageable, with modest adjustments if we make those adjustments soon.

The longer we wait, the tougher the problem gets. Yet it’s hard to get people to move if they think that the program won’t do them any good.

The fearmongers say that Social Security can’t help but fail, mainly because the government has swiped the trust fund and squandered it. That know-nothing argument has two parts: Is there really a trust fund, and how long will it last?

First, the trust fund. Social Security currently collects more in taxes than it pays out in benefits. The excess the trust fund is invested in special U.S. Treasury bonds. These bonds paid an average of 7.6 percent last year, not a bad return for a no-risk portfolio.

The trust fund is expected to grow until around 2019. After that, the program will pay more in benefits than it collects. To meet those obligations, it will tap the trust fund by starting to cash in its Treasury bonds.

This is the place in the argument where the rabble-rousers point and jeer. “Whadduya mean, cash in the bonds?” they shout. “The government already spent that money. It isn’t there.”

But I put the question to any investor who buys Treasury securities, individually or through a mutual fund. You, too, have lent money to the federal government, which it has spent on various programs. Do you think that your Treasuries “aren’t there”?

Of course you don’t. You think they’re the world’s safest investment and you’re right. They carry a U.S. Government guarantee and so do the Treasuries owned by the Social Security trust fund.

Medicare has been tapping its trust fund since 1995 and no one claims that those Treasuries will not be paid.

When Social Security starts redeeming its Treasury bonds, the government will have to adjust for that loss of cash. We can’t predict how. It might cut spending, raise taxes, or borrow an equivalent amount in the open market.

But one thing is sure: The trust fund will get all the money it’s owed.

Around 2029, the money in the trust fund dries up, according to projections today. But that doesn’t mean the system collapses. The revenues from the payroll tax would still be sufficient to pay 75 percent of everyone’s Social Security benefit for the subsequent 75 years.

So much for the nonsense that boomers will never see a dime. We do need a fix, however, to get everybody paid in full.

It may surprise you to learn that the fix can be pretty simple financially, if not politically. We could solve the problem, for example, with a 1.1 percent increase in the payroll tax, for employers and employees.

Using the average wage as Social Security counts it, that tax hike would cost the average worker $23.50 a month, with a matching amount from his or her company.

If the proceeds of a tax increase were invested in stocks instead of Treasuries, the trust fund should earn a higher return over the long run. That would increase the cash available to pay benefits.

There are other options, if workers aren’t willing to pay even a modest tax. Benefits might be trimmed a bit, especially for higher-income groups. The early-retirement age could rise and the full-retirement age could rise faster than is scheduled now. New state and local government workers (and their payroll taxes) ought to be brought into the system.

The fairest and most likely solution is some mix of tax increases and benefit cuts. That way, all generations would be asked to contribute.

The report of the advisory council includes some radical suggestions, such as slashing guaranteed benefits in favor of private investment accounts. That’s a different view of how retirement planning should work. But changes like that aren’t needed to keep the program going.

Social Security is arguably the U.S. government’s greatest success. It single-handedly keeps almost 40 percent of the elderly out of poverty, and saves tens of thousands of them from having to look to their children for support. It’s also a major source of income for orphans, widows, widowers and the disabled.

I don’t know what the system will look like in 2029 and beyond, but it will be there.

Medical Savings Accounts

The government is conducting what’s billed as a “demonstration project” for Medical Savings Accounts. If you’re eligible, you or your company can deposit a certain sum, every year, to be used for medical bills.

That money is tax-free. The insurer will typically invest it in low-interest bank accounts (Golden Rule Insurance pays 5 percent interest with no minimum balance; Time Insurance pays 4.5 percent on balances of $750 or more). Some insurers, among them Humana, offer mutual funds.

Any money you don’t spend on medical bills can be carried forward from year to year, with no taxes owed on the earnings in the account.

If you stay healthy, your MSA could grow to a substantial sum.

In general, you qualify for an MSA if you’re self-employed or work for a company with 50 or fewer employees. You must own a health-insurance plan with a high upfront deductible $1,500 to $2,250 for individual plans and $3,000 to $4,500 for families. (The deductible is the amount you pay for medical bills before your policy kicks in.)

High-deductible insurance usually costs less than comprehensive insurance. It’s to pay your deductible, as well as other medical bills, that you establish the MSA.

Syndicated columnist Jane Bryant Quinn can be reached in care of the Washington Post Writers Group, 1150 15th St., Washington D.C. 20071-9200.

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