Dear Mr. Berko:

I’ve been listening to one group of politicians tell us that Social Security is safe and sound and another group tell us that Social Security is in trouble. Whom am I to believe?

I’m 46 and my wife is 45, we’re both professionals and together earn nearly $200,000 a year. We’ve both been in the workforce since we got out of graduate school 24 years ago and figured that together, we have contributed (including our employers’ share) almost $350,000 to the Social Security Trust Fund, and by the time we’re both 67, we will (with our employers) have paid in at least another $350,000 to $450,000. Please tell us if you think all this money has gone down the drain like the pensions at Enron Corp.

My wife and I (no children) were planning on Social Security benefits plus our pension and what money we’ve saved to provide us a comfortable retirement. Tell us if you think we’re dreaming. How much income might we need to maintain our upper-middle-class lifestyle in the years after 2027? And if you have any investment ideas that don’t require much brain work (we’re dumb about investing), would you please share a few of them with us?

G.W., Mount Clemens, Mich.

Dear G.W.:

According to Stephen Goss, the chief actuary for the Social Security Administration, the system will begin to feel a painful pinch in 2009, when excess payroll taxes that have been pouring into the program will start to decline. At that point, Goss believes, the government will be forced to sell a continuing series of new-issue Social Security Treasury bonds, which are the IOUs that Congress has been giving the Social Security Trust Fund since it began spending excess Social Security tax revenues in the 1980s. Though I believe (I don’t know) that Goss is right on the money, it’s apparent that most of our politicians lack the courage to deal with it.

Many folks begin thinking outside the box when the box is empty, but by that time, it’s too late. I applaud your wisdom to face the problem today rather than 20 years from now when your contemporaries who haven’t will feel the pain. In 22 years, Social Security could be a welfare program like Medicaid and only folks with incomes below the poverty level will qualify. I’m sad to tell you that many folks under 45 today may not have the income to retire at age 67. And who wants to hire a 67-year-old when there will be millions of 45-year-olds who have families to support?

I figure that “real inflation” will average at least 5 percent a year for the next few decades, but because most folks don’t agree, I’ll use 3.5 percent, which is the administration’s mantra. So if $100,000 (pretax) in today’s money will give you a comfortable retirement in 2005, you might need at least $200,000 when you guys tell those bosses to “walk the plank” in 2027.

You must maximize your Individual Retirement Accounts and contribute as much as you can to your 401(k) plans. Now you’ve got to make some hard decisions, because I recommend that you contribute (from both your incomes) a total of $50,000 a year to a variable annuity that has a 6 percent interest income guaranty. This will take a big bite out of your income, but you have no choice. However, you’ve still got $150,000 pretax to buy hot dogs, cotton candy and beer. In 22 years, you will have paid in $1.1 million and with 6 percent annual compounding, this money is guaranteed to grow tax-deferred to $1.9 million when you’re both 67.

I believe that the annuity sub-accounts can be worth much more than $1.9 million, but if not, you might have to annuitize the guaranteed value to generate an income stream. According to today’s mortality tables, $1.9 million will produce a joint and survivor income of $11,280 a month for as long as either of you live. So combined with your IRAs and 401(k)s, you folks should be able to generate $200,000 a year in pretax income two score and two years from now.

Now my assumptions could be as wrong as sin; a miracle might save Social Security, the Dow could run up to 40,000, you could win the Irish Sweepstakes, inflation might fall to a whimper and your copiously saved money would have been needlessly invested.

Well I’d rather be wrong too soon than right too late. If I’m wrong, the worst that can happen is that you and spouse will enjoy a deliciously grand retirement in your golden years. Those 22 years of sacrifices will have caused you to buy fewer new cars and take less expensive vacations, eat fewer gourmet diners and drink Australian rather than French wines. That still leaves you two a lot of room for fun.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.

© Copley News Service