It's time to set the record straight. Millions of American retirees and future retirees depend on, or will depend on, income from Social Security to help provide a financially comfortable retirement, but there's so much misinformation out there about the program.
For example, it seems like every week that we see a headline somewhere claiming that Social Security is broke. Or have you heard that the government stole trillions from Social Security's reserves? Spoiler alert: These are 100% false.
Here are some of the most common Social Security myths, as well as the truth behind each one.
Myth 1: Social Security is broke
Don't let anyone tell you that Social Security is broke. In fact, Social Security has $2.85 trillion in reserves and ran a $35 billion surplus in 2016. What's more, the surplus is expected to continue to build the reserves for another five years.
After 2021, the picture is not so rosy. Thanks to the retirement of the baby boomer generation and longer life expectancies, Social Security is expected to swing to a deficit, which will continue for the foreseeable future. In 2034, the Social Security trust funds are expected to be completely depleted.
Myth 2: The government "raided" Social Security's reserves
You may have heard this, or some variation of it, such as "there's really no money in the Social Security trust fund -- the government is lying." As we've already discussed, there are several trillion dollars in Social Security's reserves.
However, this one is halfway true, in the sense that the Social Security trust fund isn't just a pile of cash sitting in a warehouse somewhere. To generate income, the Social Security Administration invests the money it has in special U.S. government bonds. This is a win-win for the government and Social Security. The government gets to use Social Security's excess cash to fund its operations, and Social Security generates extra income. In fact, if it weren't for the income on its investments, Social Security would have run a deficit last year.
Myth 3: Social Security won't be there when I retire
I don't want to go so far as to say this will never happen, but it's highly unlikely. Even if Social Security completely runs out of money, as it is projected to do in 2034, the incoming payroll taxes will be enough to cover 77% of promised benefits. So as a worst-case scenario, we're talking about a 23% across-the-board cut, not elimination of the program, unless Congress for some reason decides to abolish the payroll tax.
In addition, there are several ways Social Security can be fixed, and if history is any indicator, something will be done to ensure, or at least extend, Social Security's solvency.
Myth 4: Social Security's financial troubles are due to theft and/or financial mismanagement
Social Security is not projected to run out of reserves in 17 years because of poor financial management, and certainly not because anyone stole a large sum of money from the program.
Instead, the problem is that the baby boomer generation, which is in the process of reaching retirement age now, is a lot of people that will be leaving the workforce and collecting a Social Security check. Historically, a little more than three people have been paying into Social Security for every beneficiary collecting income from the program.
In 2016, however, this ratio is just 2.8 workers for every Social Security beneficiary. That number is expected to continue to fall, and by 2035, it's expected to be just over 2-to-1. Less cash will be flowing in, and more will be flowing out. That's why Social Security is facing financial difficulties in the future.
Myth 5: Social Security is beyond repair
This is 100% false. In fact, there are plenty of options to fix Social Security. Here are examples of three different ways we could fix the program for good right now. Most take the form of either tax increases or benefit cuts, and the vast majority of Americans say they would gladly pay higher Social Security taxes if it ensured the program would survive for the long term.
The problem is that Congress will need to agree on any long-term solution, and that's easier said than done. The good news is that we have 17 years until we'll be forced to do something. However, the longer we wait to fix the problem, the more painful the potential solution is likely to be.