There are plenty of myths, conspiracy theories, and downright falsehoods circulating on social media and various news outlets. While there are far too many variations of them to list here, most are versions of the following statements:
- Social Security is broke.
- Congress stole all of Social Security's reserves and there's nothing left but IOUs.
- Social Security will not be there by the time I retire.
To put it mildly, none of these are true. As I'll discuss in the next section, the truth about Social Security and its future is somewhat different than some of the headlines and social media posts you've seen might suggest.
Image source: Getty Images.
What's the real story?
Let's address these myths one at a time.
First, Social Security is not broke. Far from it, actually. As of the end of 2022, Social Security held $2.83 trillion in reserves.
It's true that Social Security isn't in the best financial shape because there's more money flowing out than flowing in. For the time being, however, there's no need to panic. Social Security's reserves declined by $22 billion in 2022, a tiny fraction of the total it has.
This also addresses the second myth, to a degree, as there is indeed money in Social Security. However, there is some truth to this because Social Security's reserves aren't simply a pile of cash sitting in a vault somewhere.
Like any responsible asset manager, the Social Security Administration invests its reserves. Social Security's trillions in reserves are invested in special-issue U.S. Treasury securities, which are technically IOUs from the government.
However, saying the government "stole" Social Security's reserves is like saying that your bank steals the money you put into a savings account. Like a high-yield savings account, Social Security essentially loans the U.S. government its money in exchange for a steady stream of interest income.
Social Security's reserves generated $66 billion in interest income during 2022 alone. Given the rising-rate environment, this is likely to be even higher in 2023.
Now, let's look at the myth that Social Security won't be there when the younger generations retire. As mentioned, it's true that Social Security is running a deficit, and it's projected to continue doing so for the foreseeable future.
Even if Social Security's reserves go to zero (which they're projected to do in 2034), it's important to realize that there's still tax revenue flowing into the system. In 2022, tax revenue brought in more than $1.15 trillion for Social Security.
If Social Security were to completely run out of money, as expected, the incoming tax revenue would be enough to cover 80% of scheduled benefits. In other words, the worst-case scenario would be an across-the-board 20% reduction.
However, the fact that Social Security's reserves are expected to last for more than a decade gives Congress plenty of time to act to fix the program. And history tells us that's exactly what will happen. In fact, Social Security was just months away from running out of money before the Social Security amendments of 1983 were passed.
The bottom line
Don't believe everything you read when it comes to Social Security benefits. Nobody receiving benefits now is at any serious risk of their monthly checks not coming.
While it's impossible to predict the future with 100% accuracy, neither major political party wants Social Security to fail. For the time being, Social Security has plenty of money, and lawmakers, therefore, have plenty of runway to come up with a solution to its expected shortfall.
