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The Biggest Social Security Lies You've Believed

By Sean Williams – Oct 10, 2020 at 6:06AM

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Are you guilty of believing in one or more of these pervasive Social Security myths and misconceptions?

Social Security is second to none in terms of importance. According to the Social Security Administration, more than 3 in 5 seniors leans on their payouts to account for at least half of their monthly income.

Yet for as critical as Social Security is to the financial well-being of our nation's retirees, it's also a program that's highly prone to myths and misconceptions. Scour any online-based discussion on Social Security, and I can almost guarantee you that you'll find a handful of long-lasting myths and misinformation that continue to be perpetuated.

The only question is, are you guilty of believing one or more of Social Security's biggest lies?

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

Image source: Getty Images.

No. 1: Social Security is going bankrupt and won't be there for me

Easily one of the most pervasive lies that millennials and Gen Xers have come to believe is the idea that the Social Security program is careening toward bankruptcy. In March 2014, the Pew Research Center released a survey showing that 50% of Gen Xers and 51% of millennials expected to receive no benefits when they retire. 

This idea continues to perpetuate because the Social Security Board of Trustees has been forecasting a growing long-term cash shortfall for the program for the past 35 years. In 2020, this cash shortfall stood at an estimated $16.8 trillion between 2035 and 2094.

But the good news for Gen Xers, millennials, Generation Z, and many future generations of workers is that Social Security is built in such a way that it can't go bankrupt. You see, Social Security has three sources of funding:

  • A 12.4% payroll tax on earned income
  • The taxation of Social Security benefits
  • Interest income on the program's asset reserves

While Social Security's asset reserves can be exhausted, eliminating the potential to collect interest income, the payroll tax on earned income and the taxation of benefits are both recurring sources of revenue. This is to say that as long as Americans keep working, Social Security will have revenue flowing into the program for disbursement to eligible beneficiaries.

Make no mistake, Social Security benefits may be reduced in the future to ensure the program's solvency over the long run, but there's no question that eligible beneficiaries will receive a payout when they retire.

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

Image source: Getty Images.

No. 2: Congress stole from Social Security and should pay back what they took

Another extremely long-lasting lie that just can't seem to be put to bed is the idea that lawmakers on Capitol Hill raided the Social Security Trust's coffers and used the excess cash to fund wars and other various government expenses. As believers of this myth often suggest, the government should repay what it's borrowed to Social Security, with interest, and everything would be OK with the program.

While some Americans might have genuine distaste for lawmakers on Capitol Hill, one thing our elected officials aren't doing is stealing from Social Security.

In each of the past 37 years, Social Security has generated a net cash surplus. In other words, it collects more revenue than is being spent on benefit payouts, administrative costs, and Railroad Retirement Benefit transfers. As of the end of August 2020, the Old-Age and Survivors Insurance Trust and Disability Insurance Trust had a combined $2.91 trillion in asset reserves built up since inception. 

The thing is, this excess cash doesn't just sit in a vault collecting dust and allow inflation to eat away at its real value. Instead, it's required by law to be invested in special-issue government bonds and, to a far lesser extent, certificates of indebtedness. Like any bond, these loans pay interest, which the federal government has made good on, without fail, throughout history. Last year, the federal government paid almost $81 billion in interest into the Social Security program. 

Has the federal government borrowed Social Security's asset reserves? Yes. However, every cent that's been borrowed is accounted for by these special-issue bonds and certificates of indebtedness. It's not as if Social Security's assets have been stolen. They're still there; they just aren't in cash form.

If the federal government were to repay these bonds, Social Security would lose out on around $80 billion a year in interest income, and it wouldn't increase the program's total assets by a penny. In other words, Social Security would be in much worse shape than it is now.

An American flag waving behind a barbed-wire fence.

Image source: Getty Images.

No. 3: Social Security would be fine if they'd stop giving it to illegal immigrants

A third and final Social Security lie believed by far too many Americans is the idea that the program's woes can be tied to payouts to undocumented workers. This myth suggests that Social Security's financial position would be greatly improved if the federal government stopped giving benefits to noncitizens.

Generally speaking, immigration is a net positive for the Social Security program. Net legal immigration is relied upon by Social Security, along with new births, to help offset the future retirement of workers. Since legal immigrants tend to be younger, they'll usually spend decades in the labor force generating payroll tax revenue for the program.

What you might not know is that undocumented workers are also contributing to Social Security. The Social Security Administration's Office of the Actuary released an analysis in April 2013 estimating that undocumented workers pay $13 billion a year into the program. However, since undocumented workers are unable to get a Social Security number of their own and have no pathway to citizenship, they don't qualify for traditional Social Security benefits. I repeat, undocumented workers can't receive Social Security benefits.

A common mistake made by Americans is conflating the Social Security program and Supplemental Security Income (SSI). SSI is traditionally approved for low-income seniors, the disabled, and the blind, but is also occasionally given to asylum seekers. Though the Social Security Administration oversees SSI, traditional Social Security and SSI are funded differently.

Social Security, as noted earlier, has three sources of funding. Meanwhile, SSI funding derives from the federal government's general fund. In short, paying SSI to noncitizens has zero bearing on the financial well-being of Social Security.

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