Three Myths about Social Security

Everybody’s favorite retirement fund is often on our minds and in the news, but be careful what you believe. Not all the myths about Social Security are true.

One of the most popular myths about Social Security is that it’s facing bankruptcy. But in fact, Social Security is actually running a surplus. It has enough money to last through 2028 before it even starts redeeming the $2 trillion (yes, that’s trillion, with a T) worth of bonds in its backup fund.

Even then, Social Security will have sufficient money to keep paying 100% benefits until 2042. Assuming Congress does nothing about it, that’s when it’ll run into trouble. So as you can see, the truth here is somewhat different from the myth — and that’s the case for most of what we think we know about the topic.

Myth 1: All those Baby Boomers are going to break the system!

Well, maybe, but they’ll have to try really hard. Yes, there are 77 million Baby Boomers, who began to retire in small numbers in 2007. But this myth about Social Security assumes a lot of things that aren’t necessarily so — not least that we’ll all just ignore the problem and hope it’ll go away.

It’s true that by 2040, there will be only two workers per retiree supporting the system. Today, there are three. However, keep this in mind, the Baby Boomers themselves have managed to amass quite a surplus (see above), and there are several factors that the doomsayers aren’t mentioning.

This myth about Social Security fails to take into account the facts that workers are staying in the workforce longer, are more productive than ever, and earn higher wages. If this isn’t enough, the government can easily raise the wage-cap for Social Security higher than the current $90,000, without any added burden to most workers.

Myth 2: We’d do better to privatize Social Security.

What, you don’t trust the government to take care of you? Seriously, one of the best features of Social Security is that while the funds aren’t cached in particularly sexy investment opportunities, those investments are very safe. The government usually invests in its own treasury bonds, in fact.

And here’s something that may help lay this myth about Social Security to rest: all those sexy investment opportunities? They’re not doing so hot right now. Even the sturdiest investment firms and banks are foundering in seas of debt, and many have failed due to bad management. Can you say “Bailout”?

Myth 3: Members of Congress don’t pay into Social Security, so what do they care?

This is a common myth, but it’s just not true — and it hasn’t been for 25 years. The myth does hold a grain of truth, though, because until 1984, they didn’t; no Federal employees did, oddly enough. In 1983, Congress passed a law requiring all Federal employees to pay into Social Security. It went into effect in 1984.

The real reason that Congress doesn’t want to deal with Social Security is that it’s a political powder-keg. Fixing it would require raising taxes or cutting benefits, neither of which are popular with their constituencies. It would be nice if this were just another one of many myths about Social Security — but it’s a bitter reality we have to face.