Social Security based on sound actuarial math

Douglas Rusta, Henderson

Friday, Feb. 18, 2011 | 2:02 a.m.

Regarding Tom Jones’ Feb. 8 letter to the editor, headlined “Retirees’ money would be better off if invested”:

He advocates investment in a 401(k) where “you would receive more in interest than you get now in Social Security, plus you would have the principal in your account ...” For many, a 401(k) was one of four sources of retirement funds; the others were personal savings (e.g., IRAs), pension plans and Social Security.

Times have changed and pension plans are being phased out, and many workers cannot contribute to a 401(k) or an IRA. Those of us with diversified portfolios will testify to the poor investment results over the past decade.

Social Security is actually a wage insurance program for those who reach retirement age or suffer disabilities that prevent employment. FICA taxes go to the Social Security Trust Fund, from which monthly benefits are paid. Excess funds are invested in U.S. Treasury bonds that pay interest to the fund. (This is exactly what private insurers do — they invest premiums received.) The program has an extremely low administrative cost — much lower than the overheads of 401(k) and IRA investments.

The Social Security program is based on sound actuarial mathematics. It was modified in 1983 in anticipation of the Baby Boom generation, and it will require tweaks along the way. In theory, the program does not need a trust fund. In actuality, the trust fund bonds will be rolled over until such time that we gain control of the national debt.

Sen. Harry Reid is correct when he says that Social Security does not contribute to the national debt problem.