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[Gene GeRue <genegerue AT ruralize.com>]

The New York Times Sunday Magazine has the best article I have seen on 
social security. It is too long to post here. If anyone wants to read it, 
go to:

http://www.nytimes.com/2005/01/16/magazine/16SOCIAL.html?pagewanted=1


Here is a short excerpt:

(Page 2 of 9)

Currently, Social Security is running a hefty surplus; the payroll tax 
brings in more dollars than what goes out in benefits. By law, Social 
Security invests that surplus in Treasury securities, which it deposits 
into a reserve known as a trust fund, which now holds more than one and a 
half trillion dollars. But by 2018, as baby boomers retire en masse, the 
system will go into deficit. At that point, in order to pay benefits, it 
will begin to draw on the assets in the trust fund.

The debate over Social Security's solvency is really two debates. The first 
is over how long the trust fund will last. The law requires the Social 
Security Administration to estimate its financial condition for 75 years 
into the future, and the agency's conclusions depend on the assumptions it 
makes about what America will look like decades hence -- how much people 
will earn, how large their families will be, how long they will live.

Politicians and other commentators tend to speak about these long-range 
trends, or at least about Social Security's finances, with an air of 
precision. This is almost amusing, since few economists can predict the 
swings in the federal budget even a year in advance. Joshua Bolten, head of 
Bush's Office of Management and Budget, said of Social Security last month, 
''The one thing I can say for sure is that if left unattended, the system 
will be unable to make good on its promises.'' But the Social Security 
Administration itself pretends to no such certainty. Its actuaries (about 
40 are on staff) frankly admit that the level of, say, immigration in 2020, 
or of wages in 2040, is impossible to forecast. ''The only thing we are 
sure of is that it won't happen precisely as we project,'' says Stephen 
Goss, the chief actuary at the agency. And the trustees' annual report, 
which is based on the actuaries' analysis, takes pains to say that it is 
not making a prediction. It makes a projection -- three different ones, 
actually -- that amount to informed but very rough guesses. The agency's 
best guess, labeled its ''intermediate'' case, is that the system will 
exhaust its reserves in 2042. At that point, as payroll taxes continue to 
roll in, it would be able to pay just over 70 percent of scheduled 
benefits. That would leave a substantial deficit, but one that Congress 
could easily avert if it were to act now when the projected problem is more 
than a generation away.

What's more, there is a strong case to be made that the agency is erring on 
the side of being overly pessimistic. If its more optimistic projection 
turns out to be correct, then there will be no need for any benefit cuts or 
payroll-tax increases over the full 75 years.

No one can definitively predict that outcome, either, of course, but David 
Langer, an independent actuary who made a study of Social Security's 
previous projections compared with the actual results in 2003, thinks the 
''optimistic'' case is its most accurate. Over a recent 10-year span, the 
trustees' intermediate guesses turned out to be quite pessimistic. Its 
optimistic guesses were dead on, and its pessimistic case -- sort of a 
doomsday situation -- was wildly inaccurate.

And, contrary to widespread belief, recent demographic trends have been 
modestly better (from an actuary's gloomy standpoint) than anticipated. For 
instance, longevity hasn't increased as much as expected. Partly as a 
result, since 1997 the agency has pushed back, by 13 years, the date at 
which it projects its reserves will be exhausted. In other words, as the 
cries of impending doom started to crescendo, the guardians of the system 
have grown more optimistic.

IS THE TRUST FUND TRUSTWORTHY?

The second debate concerning solvency is over whether the securities in the 
trust fund will be honored or whether, in Moore's pointed imagery, the fund 
will resemble a bank ''after it's been robbed by Bonnie and Clyde.'' This 
seems an odd preoccupation. Social Security does not own junk bonds or 
third-world debt; it invests in U.S. Treasuries, considered the safest 
investment on the planet. Since 1970 there have been 11 years in which 
Social Security has operated at a deficit; each time, it redeemed bonds 
from the trust fund without a fuss. Goss, the agency's actuary, says he has 
no doubt it will be able to do so again. ''Absolutely,'' he said when asked 
if the trust-fund bonds are sound.