For better or worse, Social Security is America’s most important social program. Each month, more than 62 million people receive a benefit check, many of which lean on this guaranteed payout to make ends meet. According to data from the Social Security Administration, 62% of current retirees receive at least half of their income from Social Security, with 34% relying on the program for essentially all (90% to 100%) of their monthly income.
Social Security’s problems have Americans’ imaginations running wild
Of course, you’re probably also aware that Social Security is in trouble. According to the latest report from the Social Security Board of Trustees, released last summer, Social Security is on track to pay out more in benefits than it’s collecting in revenue by 2022. This cash outflow will be the program’s first in four decades, and is the result of baby boomers leaving the workforce, retirees living longer than ever, and income inequality getting worse, among other things. By 2034, per the report, Social Security’s $3 trillion in asset reserves is expected to be completely gone.
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This last component, the depletion of Social Security’s asset reserves, is what usually sets the imagination of the American public into overdrive. It’s also the source of some of Social Security’s most notorious myths and misconceptions.
For example, in 2015, having known for about three decades that the current payout schedule wasn’t sustainable, a survey from Gallup found that 51% of nonretirees didn’t expect Social Security to provide them a benefit when they retired. This idea that Social Security will go bankrupt and not provide a benefit for today’s workforce is probably the program’s longest-running myth.
However, as I’ve exhaustively explained, Social Security can’t go bankrupt. Its 12.4% payroll tax on earned income between $0.01 and $128,400, as of 2018, ensures that the program is always generating revenue that can be disbursed to eligible beneficiaries. Mind you, this doesn’t mean the current payout schedule is sustainable beyond 2034, but it does ensure, short of Congress changing Social Security’s primary funding mechanism, that the program can’t go bankrupt.
No, the federal government didn’t raid Social Security
As for Social Security’s most pervasive and borderline irritating myth, that goes to the belief that the federal government raided Social Security’s coffers and never put the money back. As a financial journalist of nearly eight years, I can confirm that the comment section on most Social Security articles over the years has been riddled with allegations that Congress stole money from Social Security and never put it back — and that this is the primary reason why the program’s asset reserves will be depleted within the next 16 years.
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In reality, none of this is true.
The folks who perpetuate this myth strongly believe that Social Security’s current asset reserves of nearly $2.9 trillion is a sham. In other words, they don’t believe the money is there. They believe lawmakers on Capitol Hill absconded with this money, and that seniors and future retirees will suffer as a result.
The truth is that the Social Security Administration takes this extra cash, which would be earning nothing if it were sitting around in a trust, and invests it in various special-issue bonds, and to a lesser extent certificates of indebtedness, with staggered maturity dates ranging from a year to perhaps longer than a decade from now. By placing this excess cash — which has been built up since 1983 as a result of Social Security being a cash-flow positive program — into special-issue bonds and certificates of indebtedness, it earns interest. In 2016, $88.4 billion of the $957.5 billion in revenue that was generated came from interest income earned on its bonds and certificates of indebtedness.
Does the federal government use the cash that’s invested in these bonds, as well as non-special-issue bonds, for regular revenue items? Absolutely! Selling Treasury notes is a common way Congress raises money to pay the bills. The thing is, these bonds are backed by the full faith of the U.S. government, and the federal government is legally obligated to honor both the interest payments and maturities as they come along. Every single interest payment on Social Security’s special-issue bonds has been paid, and every last maturity has been met with a full repayment.
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Just because Congress uses this cash for its everyday expenditures in no way means that lawmakers raided Social Security. The program operates now as it has for decades, and the excess cash that’s been built up since 1983 will be there through 2034, according to estimates.
About the only true concern is the U.S. debt level. If national debt continues to climb in relation to GDP, then it could become difficult, many decades down the road, for the federal government to meet its interest and maturity obligations on bonds. The thing is, with Social Security expected to deplete its asset reserves by 2034, it won’t have any excess cash in 16 years, so this really isn’t an issue.
Long story short, the federal government didn’t steal from Social Security. If you want to accuse lawmakers of shorting the American public, slight them for not having yet fixed Social Security’s long-term cash shortfall, despite having no shortage of possible solutions on the table.