ONEY Myth #2 Myth #3
Fears vs. Facts
It’s broke! (But it isn’t.) It’s not
fixable! (But it is.) Here’s what critics
keep getting wrong about the future
of Social Security BY LIZ WES TON
I’ve been writing about Social Security for nearly
two decades. But even I still have trouble wrapping
my brain around some of the system’s complexities—
from how benefits are calculated to how the trust fund
works. So it’s not surprising that myths about Social
Security persist, often fed by the program’s critics.
With the debate about Social Security’s future once
again heating up, these three myths need to be put to
rest—so we can focus on the real issues.
By the time I retire, Social
Security will be broke.
If you believe this, you are not alone.
More and more Americans have become
convinced that the Social Security
system won’t be there when they need
it. In an AARP survey released last year,
only 35 percent of adults said they were
very or somewhat confident about
Social Security’s future.
It’s true that Social Security’s finances
need work, because over the long term
there will not be enough money to fully
cover promised benefits. But radical
changes aren’t needed. In 2010 a number of different proposals were put forward that, taken in combination, would
put the program back on firm financial
ground for the future, including changes
such as raising the amount of wages
subject to the payroll tax (now capped
at $106,800) and benefit changes based
on longer life expectancy.
The Social Security trust
fund assets are worthless.
Any surplus payroll taxes not used for
current benefits are used to purchase
special-issue, interest-paying Treasury
bonds. In other words, the surplus in
the Social Security trust fund has been
loaned to the federal government for
its general use—the reserve of $2.6
trillion is not a heap of cash sitting in a
vault. These bonds are backed by the
full faith and credit of the federal government, just as they are for other Treasury bondholders. However, Treasury
will soon need to pay back these bonds.
This will put pressure on the federal
budget, according to Social Security’s
board of trustees. Even without any
changes, Social Security can continue
paying full benefits through 2037. After
that, the revenue from payroll taxes will
still cover about 75 percent of promised
I could invest better
on my own.
Maybe you could, and maybe you
couldn’t. But the point of Social Security
isn’t to maximize the return on the
payroll taxes you’ve contributed. Social
Security is designed to be the one guaranteed part of your retirement income
that can’t be outlived or lost in the stock
market. It’s a secure base of income
throughout your working life and retirement. And for many, it’s a lifeline. Social
Security provides the majority of income
for at least half of Americans over age 65;
it is 90 percent or more of income for 43
percent of singles and 22 percent of married couples. You can, and should, invest
in a retirement fund like a 401(k) or an
individual retirement account. Maybe
you’ll enjoy strong returns and avoid the
market turmoil we have seen during the
past decade. If not, you’ll still have Social
Security to fall back on. ;
Get answers to the top- 25 Social Security
questions at aarp.org/socialsecurityanswers.