3 Hard to Believe -- but 100% True -- Facts About Social Security

There's a lot you may not know about the program.

Sean Williams
Sean Williams
Jun 30, 2019 at 6:06AM
Investment Planning

According to Democratic presidential candidate Bernie Sanders, "Social Security is the most successful government program in our nation's history." No matter your political preference, there's no denying Sanders' statement.

Since payouts began in 1940, Social Security has been providing a financial foundation for tens of millions of Americans, many of whom are retired workers. As of today, according to an analysis from the Center on Budget Policy and Priorities, it's a program that singlehandedly keeps more than 22 million people out of poverty, including 15.3 million retired workers.

Aside from being a financial lifeline, it's also a highly misunderstood program, with a number of myths and misconceptions taking on a life of their own, especially following the advent of social media. Below, you'll find three facts about Social Security that you might find hard to believe, but I can assure you are 100% true.

A person tightly holding a Social Security card between their thumb and index finger.

Image source: Getty Images.

1. Social Security can't go bankrupt...ever

Chances are that you've heard the Social Security program is in some pretty big trouble and facing a large cash shortfall over the next 75 years. The latest Social Security Board of Trustees report, released in April, pointed to a $13.9 trillion cash shortfall between 2035 and 2093 that, if not resolved with added revenue, lower expenditures, or some combination of the two, could lead to an up to 23% reduction in benefits for retired workers beginning in 2035.

The big sticking point of the Trustees report is the projected depletion of the program's asset reserves -- i.e., the net-cash surpluses that the program has saved up since its inception. Beginning in 2020, Social Security will expend more than it collects, thereby shrinking its $2.9 trillion in asset reserves. There's a widely held belief that once this excess capital is gone, Social Security is going to go bankrupt. In other words: Sorry, millennials, no soup for you!

But this couldn't be further from the truth. The Social Security program is designed in such a way that it can never go bankrupt. And that's not exaggeration -- I literally mean never. With the exception of Congress altering how the program is funded, there's absolutely zero chance of the program going belly up as it's designed now.

The reason it can't go bankrupt is because Social Security has two built-in sources of recurring revenue: the 12.4% payroll tax on earned income (wages and salary, but not investment income) up to $132,900 in 2019, and the taxation of Social Security benefits for certain income thresholds. Pretty much as long as the American public keeps working, revenue will keep flowing into the Social Security program that can then be disbursed to eligible beneficiaries.

What is possible, though, are future cuts to benefits, as noted in the latest Trustees report. If the revenue collected over time is insufficient to meet the existing payout schedule, then benefit cuts could be passed along to all beneficiaries in order to make ends meet. So, yes, your Social Security payout could shrink in the future, as well as struggle to keep up with inflation. But as long as you've met the requirements to receive a retired worker benefit, there's a 100% chance (again, barring congressional changes to how the program is funded) that you'll receive a payout during retirement.

A Social Security card lying atop a work visa.

Image source: Getty Images.

2. Not a dime of Social Security benefits is going to illegal immigrants

Another common thought with the Social Security program is that it would be in considerably better shape if payments weren't being made to people who never contributed to it. Namely, critics point to illegal immigrants, who they surmise are reaping the rewards of Social Security payouts and further straining the program. But, like the idea of Social Security going bankrupt, this belief is completely false.

Maybe one of the most important things to know about Social Security is just how crucial legal immigration is to its success. Most legal immigrants to this country tend to be young, meaning they'll wind up working in the labor force for decades to come, thereby contributing to payroll tax revenue. By the time they retire, it's likely they, too, will have earned more than enough lifetime work credits to receive a Social Security retired worker benefit.

On the other hand, undocumented workers aren't able to receive a Social Security benefit, period. Since undocumented workers have no Social Security number, they have no pathway to accrue lifetime benefits, or be protected by Social Security's survivor benefits or long-term disability benefits. In short, they're not receiving a dime from the program, contrary to popular belief.

What asylum-seekers and other immigrants may have access to is Supplemental Security Income, or SSI. Even though SSI is administered by the Social Security Administration, it's funded by the federal government's General Fund. Traditional Social Security is not. It generates revenue from the payroll tax, the taxation of Social Security benefits, and interest income on its asset reserves. Claiming that undocumented workers are getting SSI is not the same as receiving a traditional Social Security benefit, so make sure not to conflate the two.

As it stands now, illegal immigrants are having absolutely no negative impact on Social Security.

A businessman in a suit holding a stack of cash behind his back with his fingers crossed.

Image source: Getty Images.

3. Congress has stolen/raided exactly $0 from the Trust Fund

If you've ever read the comments section of Social Security article on social media, there's an almost 100% chance you've come across a reader who proclaimed that the program's cash shortfall was fully to blame on Congress, which raided the Trust Fund to pay for wars and never put any of the money back. These folks firmly believe that if Congress were to repay what they "stole," with interest, the program would be solvent for a long time to come.

Yet what might come as a surprise to many is the fact that Congress hasn't stolen anything from the Social Security's Trust Fund, and, best of all, the program is generating interest on Uncle Sam's dime.

By law, Social Security's net-cash surpluses are required to be invested in special-issue government bonds, and to a far lesser extent certificates of indebtedness. These interest-bearing assets have varying maturity dates and interest rates, with the nearly $2.9 trillion in asset reserves today yielding more than 2.8% a year. In layman's terms, the federal government is borrowing (not to be confused with stealing or raiding) Social Security's excess cash, and currently paying the program more than $80 billion in interest each year in return. That works out to more than 8% of Social Security's annual income in 2018.

If you were to go to a bank and buy a one-year certificate of deposit (CD) with $5,000 that you had lying around in a savings account, the bank hasn't stolen or raided your money. It's very likely going to take your $5,000 and loan it out to someone else to make a profit, but your CD is going to earn you interest. In other words, the nature of the asset has changed, but it hasn't decreased in value. The same is true with Social Security's investment holdings. Just because the program has $2.89 trillion in bonds as opposed to cold, hard cash doesn't mean Congress has stolen a dime. Every cent is accounted for.

Worse yet, if Congress were to pay the money back, Social Security would lose out on an estimated $800 billion-plus in interest income over the decade.

To sum this point up: Congress hasn't stolen anything and is already paying interest to the program. Paying the money back would be the last thing we should hope Congress does.