It’s time to set the record straight. Countless American retirees and future retirees depend on or will depend on, income from Social Security to help provide a financially comfortable retirement, however, there’s so much misinformation out there regarding Social Security.
As an instance, it seems like each week which we see a headline somewhere asserting that Social Security is broke. Or have you heard that the government stole trillions from Social Security’s reserves?
Below are a few of the most common Social Security myths, as well as the facts behind each one.
1. Social Security is Broke
Don’t let anybody tell you that Social Security is bankrupt. What’s more, the surplus is predicted to continue to build the reserves for another five years.
Following 2021, the picture is not so rosy. As a result of the retirement of the baby boomers generation and longer life expectancies, Social Security is expected to swing to a deficit, which will continue for the near future.
2. The government raided Social Security’s reserves
You may have heard this, or any variant of it, such as “there is no money in the Social Security trust fund — the government is lying.” As we’ve previously discussed, there are several trillion dollars in Social Security’s reserves.
But this one is halfway true, in the sense that the Social Security trust fund is not just a pile of money sitting in a warehouse somewhere. To make income, the Social Security Administration invests the money it has in special U.S. government bonds. This really is a win-win for the government and Social Security. The government gets to use Social Security’s excess cash to fund its own operations, and Social Security generates extra income. Actually, if it were not for the earnings on its investments, Social Security would have run a deficit this past year.
3. Social Security will not be around when I Retire
I don’t wish to go so far as to state that this will never occur, but it’s highly unlikely. Even if Social Security fully runs out of cash, since it is projected to do in 2034, the incoming payroll taxes will be enough to cover 77 percent of promised benefits. So as a worst-case scenario, we are referring to a 23% Nominal cut, not a removal of this program, unless Congress for some reason makes the decision to abolish the payroll tax.
Additionally, there are several ways Social Security can be repaired, and if history is any indicator, something will be done to make sure, or at least extend Social Security’s solvency.
4. Social Security’s financial troubles are due to theft or mismanagement
Social Security is not projected to run out of reserves in 17 years because of poor fiscal management, and certainly not because anyone stole a large sum of money in the program.
Instead, the problem is that the baby boomer generation, which is in the process of attaining retirement age today, is a great deal of people that will be leaving the workforce and collecting a Social Security check. Historically, a little more than three individuals are paying into Social Security for each beneficiary collecting income from the program.
In 2016, however, this ratio is merely 2.8 workers for every Social Security beneficiary. That number is forecast to continue to drop, and by 2035, it is expected to be just over 2-to-1. Less money will be flowing in, and more will be flowing out. That is why Social Security is facing fiscal difficulties in the future.
5. Social Security is beyond repair
This is 100% false. Actually, there are plenty of choices to fix Social Security. Here are examples of three unique ways we can fix the app for great at the moment. Most take the form of either tax increases or benefit cuts, and the great majority of Americans say they’d gladly pay higher Social Security taxes if it ensured the program would endure for the long run.
The issue is that Congress will need to agree to any long-term solution, and that’s easier said than done. The great thing is that we have 17 years until we’ll be forced to do something. On the other hand, the longer we wait to fix the problem, the more painful the possible solution is likely to be