For the past 78 years, Social Security has been providing a financial foundation for our nation's retired workers. While no one is exactly getting rich off their Social Security benefit check, it's currently keeping more than 22 million Americans, including 15.1 million seniors, out of poverty, per the Center on Budget and Policy Priorities. Thus, without this program, we'd likely be contending with an elderly poverty crisis right about now.
But for as much as Social Security does for retired workers, survivors of deceased workers, and the disabled, there are also plenty of things it was never designed to do.
1. It isn't designed to go bankrupt
Probably the most important aspect of this program is that its funding mechanisms ensure that it'll never go bankrupt -- even if the annual Social Security Board of Trustees report shows that it's in trouble.
According to the latest Trustees report, Social Security will begin paying out more in benefits than it collects in revenue starting this year. By 2034, after this net cash outflow has accelerated considerably on an annual basis, the $2.9 trillion in asset reserves that Social Security had built up between 1983 and 2017 will be completely exhausted. While some people would view this as an insolvency or bankruptcy for Social Security, it's nothing of the sort.
You see, Social Security generates income three different ways: a 12.4% payroll tax on earned income of up to $128,400 (as of 2018), the taxation of Social Security benefits, and interest income earned on its asset reserves. Even if its assets reserves disappear, removing interest income from the equation, the program would still be generating plenty of revenue from its payroll tax on working Americans, and to a lesser extent from the taxation of Social Security benefits on select households.
Ultimately, an across-the-board benefits cut of up to 21% may be required to keep payouts going without any further cuts through the year 2092, but Social Security will always have money streaming in that can be disbursed to eligible beneficiaries. It can't go bankrupt, and will be there for future generations of retirees.
2. It was never intended to be a primary income source
Initially, when payments first began in 1940, Social Security was expected to help low-income workers for a few years during retirement. However, a lot has changed over nearly eight decades.
Today, 62% of aged beneficiaries lean on the program to provide at least half of their monthly income, according to the Social Security Administration (SSA). What's more, the average 65-year-old will live another 20 years, per the SSA. That means the average senior is relying heavily on Social Security for about two decades.
The problem? Social Security was never designed to be a primary income source. According to the SSA, it's really a supplementary income that's expected to replace about 40% of the average worker's wages during retirement. Obviously, this percentage could be a bit lower for higher-income individuals and higher for low-income workers. Nonetheless, the expectation from the SSA is that you'll be saving money and investing for your future throughout your lifetime, thereby leaning on retirement accounts, a pension, or some other source of income during retirement as Plan A, with Social Security comprising your secondary or tertiary income source.
3. It was never to be viewed as an entitlement
Despite what popular beliefs and myths may be out there, Social Security wasn't designed to be an entitlement program for Americans. Just because you're a citizen, it doesn't entitle you to receive the survivors insurance or disability insurance protection provided by the program or retired worker benefits when you reach age 62 (or older).
If you want the insurance protections currently afforded to an estimated 175 million working Americans and their families, you'll have to work for it. In order to qualify for Social Security benefits, you'll need to earn 40 lifetime work credits, of which a maximum of four credits can be earned annually. In 2018, each work credit equates to $1,320 in income. Ergo, $5,280 in income will max out your work credits for the year. Therefore, if you work part-time for at least 10 years, you should earn enough credits to qualify for survivors and disability insurance protection, as well as a retired worker benefit.
It's worth noting that disabled workers have a sliding scale based on their age that can allow them to qualify for disability benefits, even if they haven't reached 40 lifetime credits.
Likewise, it may be possible for some folks to receive benefits even if they've never worked a day in their lives. Spousal and/or survivor benefits, which are based on the work and earnings history of a spouse, can make this possible.
4. It isn't designed to provide benefits to noncitizens
A somewhat common, but incorrect, belief is that Social Security is being used to provide money to noncitizens. However, the program was never designed to do that. Only Americans with 40 lifetime work credits are eligible to receive a Social Security payment.
In fact, this myth has things backwards. According to data from AARP, the wage income of undocumented immigrants supplied Social Security with $12 billion in payroll tax income in 2010. Since these workers aren't citizens, they have no chance of receiving any money from Social Security.
The reason this myth likely perpetuates is because people are probably conflating traditional Social Security and Supplemental Security Income, or SSI. SSI primarily provides supplemental income to the disabled, blind, and those ages 65 and over; but noncitizens who are refugees, asylum seekers, or lawfully admitted for permanent residence are eligible, too. Though the SSA runs both programs, the SSI program is funded from a completely different source: the federal government's general fund. This means traditional Social Security isn't providing income to noncitizens, period.
5. It isn't intended to be Congress' piggy bank
Lastly, Social Security was never designed to be Congress' personal piggy bank -- and despite the numerous rumors that exist, it isn't.
There's a very popular misconception that Congress has stolen, raided, or taken money from the Social Security Trust to fund wars and all sorts of projects and that the money taken was never paid back. The folks who believe this myth often suggest that if the money taken were paid back, with interest, Social Security would be fine and not running out of excess cash, as the Trustees report has suggested.
However, all of this is wrong. If anything, Social Security is using the federal government as its own personal piggy bank. The approximately $2.9 trillion the Trust currently has in its asset reserves has been used to purchase federally issued bonds and, to a lesser extent, certificates of indebtedness. These bonds supplied the program with $85.1 billion in interest income last year, or about 8.5% of total revenue. In order for the government to borrow funds from Social Security, it has to pay interest into the program. Then, when a bond becomes due, the SSA simply rolls the cash over into a new bond, or group of bonds, in order to generate more interest for the program.
Congress could pay back every cent in bonds and certificates of indebtedness that are currently accounted for. Of course, if they did so, Social Security would lose out on an expected $78 billion to $83 billion in annual income over the next decade.
In even simpler terms, Congress didn't steal anything, and paying the money back would only make things worse.
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