Q: I’ve heard a lot about "privatizing" Social Security lately. Could you explain what’s the outlook for Social Security under the new plan offered by President Bush? —Pam

A: First of all, keep in mind that the President can propose changes to Social Security but only Congress can effect them. After taking a look at the new fiscal 2006 budget proposed by the White House, many Representatives and Senators expressed doubt that the President could get everything that he asked for.

However unlikely passage of a new law changing Social Security might be, it may be useful to look at what Mr. Bush has proposed. Although all the details have not been spelled out, he proposes the "privatization" of Social Security in part. Each worker could retain a part of his or her share of payroll taxes (each employee under social security pays 6.2% up to $90,000 and the employer pays a further 6.2%) and invest it in stocks or bonds through one of several government-selected mutual funds. Which funds we don’t yet know, but we do know that mutual funds charge "operating expenses" which come out of the investment income of the fund. The idea is that you may do better with the privatized part of your payroll tax by investing it in various ways than the Social Security Administration does investing it in Treasury bonds. But then you could also do worse investing in mutual funds.

According to some responsible estimates I’ve seen recently, the current Social Security has an invested surplus that is unlikely to run out until 2052. That doesn’t mean Social Security will be broke after 2052, but that the shortfall of income from payroll taxes to cover benefits paid out can’t be covered by the surplus collected in prior years. Long before that happens, the government can and probably would increase payroll taxes and raise the limit of salary on which they’re paid so that benefits do not have to be reduced. The proposed privatization of Social Security is going to be discussed in the Congressional debates that will occur over the next few months before an appropriation bill is passed and sent to the President for signature, so stay tuned.