‘Social Security Is Already in Deficit’: MarketWatch’s Brett Arends Dissects What Retirees Get Wrong About the Program

On this episode of The Long View, our guest was Brett Arends, who’s been a columnist for MarketWatch, The Wall Street Journal, and others. We talked about income annuities, investing FOMO, and the appeal of Treasury Inflation-Protected Securities. Today, I want to highlight what he said about the solvency of Social Security.

Amy Arnott: We wanted to just briefly touch on Social Security. And you wrote a pretty pessimistic piece a few weeks ago based on your reading of the Social Security and Medicare Trustees Reports of the programs’ fundedness. Why do you think things are worse for Social Security and Medicare than we’ve been led to believe?

Brett Arends: The simple truth is there is no such thing as the Social Security Trust Fund, not in any meaningful way. I was watching a Senate hearing yesterday about Social Security, and I ruminated that every single senator who spoke, right or left, managed to say some things that were absolutely true and some things that were total nonsense. And of course, depending on which side of the aisle they’re on, what they said that was true or what they said that was nonsense, varied. And it was sort of why can’t we just have everybody just telling the truth? Ron Johnson, not someone I always agree with, but Ron Johnson, who’s a very conservative Republican, was, I think, may have been the only person to say there actually isn’t a trust fund. On that particular point, he is absolutely correct. It’s an accounting mechanism. All it basically means is it counts how much money has been paid into Social Security over the years through taxes and how much is being paid out.

In real terms, it’s all government money. In real terms, the government is already bailing out Social Security. Social Security is already spending more than it is taking in Social Security payroll taxes. And the difference is being made up by general government spending, in other words, the taxpayer. The talk about the trust fund is very misleading. It is very misleading because people think there’s this pot of money, and I’ve stopped writing about this because, now, finally, everyone else has woken up to it, so it’s no longer interesting. But for years, I was writing that it is insane that this is the only pension fund I know of that is not invested in the stock market.

If the Social Security money, if the Greenspan Commission in the early ’80s had invested Social Security or some of Social Security’s assets in the stock market, we wouldn’t have any kind of funding crisis today. There would be a real trust fund. It would have real assets, and it would be fully funded. They didn’t do that. The money essentially was lent to the federal government. And when you get through all the accounting malarkey, if you like, when it comes down to it, there isn’t a trust fund.

And it’s the same for Medicare. The majority of Medicare is actually funded by general taxation anyway, but the Part A hospital insurance part technically has a trust fund like Social Security’s. But again, it’s just an accounting mechanism.

The reality is we are already at the point where we are paying out more than Social Security taxes are bringing in, which means that Social Security is already in deficit. And all this talk about the trust fund and the trust funds, plural, is misleading.

By the way, there is a lot of debate about the year that this trust fund supposedly runs out of money. If you look at the Social Security and disability insurance trust funds together, which is what they usually do, I think we have a little bit more time than if you just look at Social Security on its own.

However, fundamentally, these trust funds, they sort of exist in law. They exist in accounting, but they don’t exist in reality. We as Americans should stop thinking about the trust funds. We should be thinking solely about the actual cash flow of Social Security year to year.