BUSINESS MATTERS NICK MASSEY A STUTE I NVESTOR Is the Social Security Trust Fund Really There? I ’m often asked if Social Security is broke or going broke. The answer is yes, sort of, or maybe already did. I’m not trying to be cute with the answer because it’s a little complicated. The Social Security Administration announced in June that it would have to dip into its trust fund for the first time in 36 years. With the Baby Boomers retiring in large numbers now, the Social Security system is now paying out more in benefits than it is taking in as tax revenue. If current trends hold, the trust fund will be depleted by 2034. Well, that sure sounds bad, doesn’t it? But there is more to the story than that. We’re talking about a trust fund that doesn’t actually have any money in it. Since its inception, the money you and I have paid into Social Security went into the trust fund and then the money not paid- out was immediately loaned to the Federal Government. No money is kept in the trust fund. The Federal Government issues special Treasury IOU’s that Social Security will collect when they finally start sending more money out than is coming in. That day has arrived. No, it wasn’t stolen in some elaborate scheme. It just passed through the trust fund into the government general fund, to be used for whatever they chose to use it for. When Social Security starts paying out 26 September 2018 | The Business Times more than it takes in, like now, they simply call on the government to send them some of the money they are holding for them. Of course, this is only a problem if the government doesn’t have the money. That’s not a problem today, but will it be in the future? Who knows? Perhaps you’re not feeling so good right now. What is the Social Security trust fund? The Social Security Administration essentially has two accounts at the U.S. Treasury — The Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund. Let’s call both collectively the “trust fund.” You and I and every other working American contribute to these funds through our payroll taxes. 6.2 percent of your paycheck (up to the first $128,400) goes to Social Security, and your employer chips in another 6.2 percent. For the past 36 years, tax revenue coming in was greater than benefits going out and the surplus went to the Federal Government. Today the “trust fund” is calling money back to make-up the shortfall. By today’s calculations, that will last until 2036. Obviously, this can’t go on forever and something will eventually have to be done. Just like if you spend more than you make or have in savings, at some point you have to either bring in more money, pay out less, or some combination of both. It’s simple math and nobody likes the solution. The so-called trust fund was never more than an accounting trick. The idea that there was cash set aside for our retirement by the wise wizards running the government was a convenient fantasy. Keeping the fantasy alive actually isn’t that hard. If Congress raises payroll taxes, raises the retirement age or finds other stealthy ways to reduce benefits, such as by means testing or tinkering with inflation assumptions, we can rebuild the “trust funds” in a hurry. The reality is that the retirement of the Boomers is going to force the government, i.e. Congress, to make some uncomfortable choices. Fixing Social Security is fairly easy. It’s just that nobody likes the fix. I don’t know what the ultimate answer will be, but I’m pretty sure that almost everyone will be unhappy about it. The best solution? Make sure you are also saving and preparing for retirement on your own. NICK MASSEY is President of Massey Financial Services in Edmond, OK. Nick can be reached at www.nickmassey.com. Investment advice offered through Householder Group Estate and Retirement Specialists, a registered investment advisor.