Six Social Security Mythshttp://www.fool.com/investing/ira/2004/03/08/six-social-security-myths.aspx Robert Brokamp
March 8, 2004
That Alan Greenspan... always causing a ruckus. A couple of weeks ago, he said that the rebellion in Haiti was a CIA plot, that he found the Super Bowl halftime show "titillating," and that the Social Security program will not be able to cover its future obligations.
OK, so maybe he just said the last part. But it got as much attention as if he had said the other two -- as if he said something scandalous and controversial. However, he didn't. He just said something that he's said before, and that everyone already knows. Or at least I thought that everyone knew.
The media covered Greenspan's comments, and often included segments that featured "average Americans" and their reactions -- which were often misinformed. On one level, the lack of knowledge about Social Security is alarming, given its importance to the average American. But on another level, it's understandable, given our daily information inundation. Heck, proper pancreas function is also important to average Americans, myself included, but I couldn't tell you what function my pancreas serves.
But from what I read and saw, it's clear that there are a lot of myths surrounding the pancreas, I mean the Social Security debate. So permit me to address what I see as the biggest misconceptions about the biggest line item in the federal budget.
Myth 1:Social Security is a savings account
Social Security, however, is not a savings account. You do not have an envelope at the Social Security Administration in which your taxes are deposited. The taxes taken out of your paycheck today become a retiree's benefit check tomorrow. For now, the government is collecting more money than it is paying out, so a trust fund was established for the extra payments.
However, in 15 years the flow will reverse, with more money going out than coming in. At that point, the government will need to dip into that trust fund. The SSA estimates that by 2042, the trust fund will be depleted.
Myth 2: These trust funds have money
So when Uncle Sam slips his debit card into the trust fund ATM in 15 years, he'll just receive an IOU -- from himself. In other words, instead of billions of dollars' worth of reserves, the trust fund represents billions of dollars' worth of debt. How will the government be able to pay this debt, i.e., pay the Social Security benefits that won't be funded by tax receipts? By borrowing more money! (Perhaps Uncle Sam needs to visit our Credit Center and shop for a low-interest-rate credit card.)
Myth 3: Social Security will pay for a swell retirement
Myth 4: Social Security is just about retirement
According to the SSA, in 2002 the average insurance value of Social Security benefits to a young disabled worker with a spouse and two kids was $353,000. For the same year, the average life insurance value to survivors of a deceased worker covered by Social Security was $403,000.
That may not be much consolation if you never receive disability or survivor's benefits, but you nonetheless have that safety net. And since one in seven workers die before age 67, and almost three out of every 10 of today's 20-year-olds will become disabled before age 67, this coverage isn't negligible.
Myth 5: You won't get anything