What’s Actually Happening In the Social Security System?

Social Security is coming under attack. It happened during the stock boom of the 1990s, and it is happening again. The first challenge arose from hope: that savers would get more retirement income for their money if they bought stocks. But the idea of privatization was not popular with the public.

 

Now, the attack comes from fear; fear that Social Security has serious financial problems and is headed for disaster. A CNN/Opinion Research poll found that 60 percent of adults who aren’t retired expect to get zero from Social Security in their older age. They’re mistaken. As misinformation and mistrust grow, however, it becomes important to explore several Social Security myths that endanger the system’s public support.

 

Social Security is not going bankrupt. Even in the unlikely event that nothing changes and the program’s entire surplus runs out in 2036, as projected, checks would keep coming. Payroll taxes at current rates would cover 77 percent of all the future benefits promised. That’s true for young and old alike, and includes inflation adjustments.

 

I’d be better off if I’d kept my Social Security taxes in my own investment account. Really? You will faithfully to put that money aside, every year of your working life, in a mix of stocks and bonds, without ever skipping a year. You’d need to invest far more than you probably realize to match the benefits Social Security pays. Take a 65-year-old couple with a single breadwinner who earned the average wage. At retirement, they’d currently get about $2,170 a month, plus inflation adjustments, for life, the Urban Institute reports. To equal that sum in private savings, they’d need to have about $580,000. Are you likely to save that much?

 

In 1983, Congress made changes to Social Security to build a fund that would pay for boomers when they retire, so it’s not fair to change benefits now. It raised taxes and cut some future benefits to cure an imminent insolvency. The trust fund reserves, now $2.6 trillion, were a by-product of the decisions made. Congress never veered from its vision of intergenerational compact: Working people pay for those who don’t, or can’t, work anymore. On the flip side, the compact requires older people to make some concessions so that younger people can afford it.

 

You should get out of Social Security the amount you put in. No. Social Security is not an individual investment program. Your taxes paid for the earlier generation of retirees. Current workers are paying for you. The total amount of your benefit depends on how much you earned, whether you get a spousal benefit, when you retire and how long you live.

 

Social Security helps old people, not younger people like me. Wrong. It provides income support to qualified widows and widowers with young children, as well as orphans. Just as important, it saves young families from the cost of supporting older parents who, without Social Security, wouldn’t have enough money to live on. It also provides benefits for workers who become disabled.

 

If young people switched their payroll taxes into private accounts, the government would have to borrow $6.5 trillion or more to keep paying out benefits to current retirees. That means higher deficits, higher income taxes, further slashes in spending, or all three. It’s smarter and cheaper to fix the current program and put everyone’s mind at rest.