Social Security is unquestionably our nation's most revered social program. It provides more than 62 million people, mostly seniors, with a monthly benefit check, and it's responsible for keeping just over 22 million of those folks out of poverty. Take Social Security out of the equation, and we'd almost certainly be looking at a serious elderly poverty problem.
Yet for as much as Social Security does for retired workers, survivors of deceased workers, and the long-term disabled, not much is genuinely known about the program. That goes for basic knowledge as well as the rules that require Americans to read the fine print, so to speak.
To illustrate this point, a survey from MassMutual Financial Group that was released in May found that 47% of seniors aged 50 and up failed to correctly answer four or five out of five basic-knowledge questions about Social Security. If seniors, who benefit most directly from Social Security, aren't in the know, then you can imagine what the understanding of the program is among the rest of the adult population.
With that being said, sometimes the American public needs to hear no-nonsense facts about Social Security, whether they like the answer or not. Here are the five facts about Social Security you need to hear.
1. Social Security isn't going bankrupt, no matter what anyone says
To begin with, don't be suckered into believing that Social Security is spiraling into insolvency.
According to the latest Board of Trustees report, Social Security is set to expend more than it collects in revenue this year for the first time since 1982. With each subsequent year, save for 2019, this net cash outflow is expected to grow, leading to the expectation that the program's $2.89 trillion currently in asset reserves will be depleted by 2034. Clearly, this isn't good news. But it's not damning news, either.
You see, even if this excess cash were to disappear, taking the interest income the program nets annually with it, Social Security still has two recurring sources of revenue that would be unaffected: the 12.4% payroll tax on earned income of up to $128,400 in 2018, and the taxation of benefits over certain income thresholds. As long as the American public keeps working and earning wages, the Social Security program will collect revenue for disbursement. In 2017, 91.5% of the $996.6 billion collected came from these two recurring revenue sources.
To be clear, Social Security's current payout schedule isn't sustainable. Unless new revenue is added and/or cut expenses are cut, an across-the-board benefit reduction of 21% may be needed by 2034. Still, a reduced benefit is better than no benefit at all.
2. Congress is in no rush to fix the program
Sticking with the no-nonsense theme, lawmakers are well aware that Social Security is facing long-term problems, but neither party is all that eager to correct them. The reason? All Social Security solutions create a loser.
If the wealthy pay a higher tax rate, which is what the Democrats would prefer to see happen, then they wouldn't see any extra dime in benefits come retirement. If the Republicans are successful in raising the full retirement age, then future generations of working Americans would see reduced lifetime benefits. These groups who are adversely affected could choose to vote out elected officials. Or, to put this bluntly, politicians fear losing their elected seats and thus won't touch Social Security with a 10-foot pole.
The other component here is that Democrats and Republicans each have a core solution that works to eliminate the estimated $13.2 trillion cash shortfall between 2034 and 2092. Since each solution fixes the problem, neither party believes it necessary to compromise and find common ground with their opposition. I'd venture a guess that this stalemate will continue well into next decade, if not longer.
3. You're probably too reliant on Social Security
Let's face it: The real reason you're worried about Social Security is that you're either too reliant on the program now or you expect to lean on it heavily during retirement.
According to data from the Social Security Administration (SSA), 62% of today's retired workers lean on the program to supply at least half of their monthly income. Meanwhile, 34% of these retirees essentially count on their monthly benefit check for 90% or more of their income. That's far too much financial weight being placed into hands of Social Security.
The SSA says Social Security income should replace about 40% of the average worker's wages in retirement. Sure, this percentage could be a bit higher or lower depending on your lifetime income level, but the point is that Social Security isn't designed to be a primary income source.
Making matters worse, as noted, a benefits cut could occur in less than two decades. Based on the average monthly retired worker payout of $1,417.22 in September 2018, we're talking about a reduction to $1,119.60 a month, in 2018 dollars. That's not that far above the federal poverty level. In other words, it's time to rightly think of Social Security as a secondary income source.
4. While partially at fault, Congress didn't steal a dime from or raid Social Security
Make no mistake about it: Congressional inaction deserves its share of the blame for Social Security's imminent cash shortfall. The longer lawmakers wait to act, the more costly the fix will be on the American public. But for all the negativity surrounding Congress on the issue, one thing they haven't done is misappropriate Social Security's excess cash.
One of the most pervasive myths is the notion that Congress has stolen trillions of dollars in Social Security's excess cash and used it to either line their pockets or fund wars. This isn't true.
By law, the SSA is required to invest any net cash surplus the program has into special-issue government bonds or certificates of indebtedness in return for annual interest income. In English, this just means that the SSA lends its extra cash out to the government in exchange for an annual interest rate. Currently, the average rate of interest being earned on the trust's $2.89 trillion is almost 2.9%. The government is free to use the money it borrows to pay for a multitude of budget line items, which may include defense spending, but could also pertain to education, healthcare, or infrastructure spending. Meanwhile, the Social Security program receives interest that helps support the program. Last year, $85.1 billion was collected.
Feel free to point your finger of blame at Congress for twiddling its thumbs as Social Security struggles, but don't blame lawmakers for what is a truly win-win borrowing situation between the SSA and the federal government.
5. Immigration isn't the problem -- it's a solution
Last, but not least, there's no reason to blame legal and undocumented immigrants for the plights of Social Security, because they're actually a long-term help, not hindrance, to the program.
When most workers migrate to the United States, they do so at a relatively young age. That means legal migrants who go through the process to become citizens will probably work for decades before qualifying for a retired worker benefit. And remember, Social Security isn't an entitlement -- it's a benefit that's earned through work. Essentially, legal migrants will work for decades, supplying the Social Security program with much needed payroll tax revenue to fund disbursements to eligible beneficiaries.
Even undocumented immigration isn't a problem for the traditional Social Security program. Since illegal migrants are unable to obtain a Social Security number, they'll be unable to receive any payouts or protections (i.e., disability and/or survivor benefits) the program offers. Yet, as AARP found in 2010, undocumented workers still contributed $12 billion in payroll tax income that they'll never see a cent of.
Ultimately, immigration is a net positive for the Social Security program.