Dispelling the Greatest Social Security Myth of All Time

There are a lot of Social Security unknowns, but this pervasive myth is just plain wrong.

May 24, 2014 at 7:04AM

By and large, there are few greater investing enigmas than Social Security.

Ask most people, and they'll tell you that they expect to be paid "something" from the Social Security Fund when they retire. But, ask them how Social Security is directly affecting them now, or how much they plan to rely on Social Security in their later years, and you're liable to get a "deer in the headlights" look in return.

The general observation is that the older you are, the more likely you are to have had a monetary benefit from Social Security. As a CNN/ORC International poll noted in 2011, 85% of people aged 65 or higher reported a good effect from Social Security compared to 62% of 18- to 34-year-olds which reported no effect whatsoever. The end result is that Social Security is somewhat well understood by seniors, while it remains a head-scratcher for most everyone else.

However, if you ask practically any age group, they'll tell you that the Social Security Trust Fund is in trouble. This same CNN/ORC International poll notes that between 57% and 82% of all age groups respondents believed the Social Security System was in "crisis" or had a "major problem." In other words, the fund is already paying out more money than is coming in, which threatens the sustainability of Social Security disbursements.

Source: Social Security Administration

Social Security's problems, in a nutshell
"What's causing this problem?" you ask.

The primary culprit is a massive demographic shift whereby the lower-birth-rate generation begins to replace the baby-boomer generation. With fewer workers and a rising number of baby-boomer beneficiaries, the worker-to-beneficiary ratio is expected to fall to as low as 2 by 2035, according to the Social Security Administration. Fewer workers and more qualifying for benefits certainly creates a cash flow problem.

In addition, there's the simple fact that we're living longer because of improvements in health care, as well as increasing education from the Centers for Disease Control and Prevention regarding our nation's top killers, such as heart disease and cancer. If people are living longer, it means a greater length of time they'll be able to collect Social Security benefits, further draining the fund.


Source: StockMonkeys.com, Flickr.

The greatest Social Security myth of all
These concerns have manifested into the notion that sometime by the mid-2030s the Social Security Fund will be bankrupt and future generations will simply be left to fend for themselves. This is, without question, the greatest Social Security myth of them all.

The simple notion that the Social Security Trust will be bankrupt by 2033-2037 is so blatantly incorrect it's not even funny. Based on the current projections from the Congressional Budget Office and the Social Security Administration, the reserve fund will be out of money by 2033 or 2037, depending on your source. However, income will still be coming in via workers' paychecks.

What this means is that the Social Security Trust Fund, without doing anything more than lowering payout benefits from 100% to 75%, could extend those benefits to citizens through 2087. That's right ... dropping benefits just 25%, even with increasing longevity, a smaller workforce, and a huge number of boomer retirees could yield another 50 to 54 years of viability before more minor cuts may again be needed.

So relax, younger generation: Social Security looks as if it should be there for you when you're ready to retire. Of course, that doesn't mean you shouldn't consider taking a few steps to help improve your chances of a comfortable retirement.

Consider taking these steps
Although you can't do a whole lot to stop a major generational shift, you can take specific steps that will increase your payout when you do retire.

For example, waiting as long as possible to take your Social Security disbursements will increase the amount you're eventually paid out. According to Bankrate.com, a person who begins taking Social Security distributions at age 70 will receive 76% more than an individual who begins taking their disbursement when they're first eligible at age 62. If you can comfortably live off your retirement accounts until age 70, then this could be a smart move.

Another big factor is paying into the system. Even though you need to earn only $4,640 over 10 years to qualify for some form of SSA benefits, your SSA benefits are determined by averaging your 35 highest-earning years. This means someone who works 25 years and then retires or stops working is going to have the SSA average in 10 zeroes into their eventual benefit disbursements. Put simply, if you can work a full 35 years, do it!

Lastly, don't wait till it's too late to start an individual retirement account. For the younger generation, a Roth IRA can be a particularly powerful tool that could provide more than enough income to allow them to push their Social Security disbursements to age 70. Roth IRAs allow investments to grow completely tax-free as long as no disbursements are taken before age 59 1/2, so it likely represents a smart money move for people currently under age 50.

You can also increase your retirement income through other means: dividends. You can find some of the best by reading this report.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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