Wake up, Muggles! Social Security will live forever – unless, of course, you let it die.

October 13, 2010 | Aaron Keating

Anna Turner is publicly calling out her friends for not bothering to learn what they have at stake in Social Security:

I don’t bring up Social Security much around my friends, probably because it’s not exactly the most riveting topic, but mainly because I know most of us in our twenties haven’t given our retirement much thought. In fact, when I finally did bring it up, it soon became clear that 1) almost nobody knew the basics, and 2) just about everybody thought Social Security wasn’t going to be around when they got older.

This might all be solved if we ever bothered to educate ourselves beyond what we “think” we know about one of the country’s oldest and most successful programs. Try to remember why you first thought Social Security wasn’t going to make it by the time you retire. Then do yourself a favor and find out for yourself. If you, did you might find out that Social Security is not in crisis, that the Social Security Administration already planned for the baby boomer retirees in 1983, or that Social Security’s long-run shortfall is small and easily manageable with reform. In a nutshell: an easy fix.

Read Anna’s entire post, and if inspires you to learn a little more – which it should – then take a look at these Top Five Myths About Social Security:

Myth 1: Social Security is going broke.

Reality: There is no Social Security crisis. By 2023, Social Security will have a $4.3 trillion surplus (yes, trillion with a ‘T’). It can pay out all scheduled benefits for the next quarter-century with no changes whatsoever. After 2037, it’ll still be able to pay out 75% of scheduled benefits–and again, that’s without any changes. The program started preparing for the Baby Boomers retirement decades ago. Anyone who insists Social Security is broke probably wants to break it themselves.

Myth 2: We have to raise the retirement age because people are living longer.

Reality: This is a red-herring to trick you into agreeing to benefit cuts. Retirees are living about the same amount of time as they were in the 1930s. The reason average life expectancy is higher is mostly because many fewer people die as children than did 70 years ago. What’s more, what gains there have been are distributed very unevenly–since 1972, life expectancy increased by 6.5 years for workers in the top half of the income brackets, but by less than 2 years for those in the bottom half. But those intent on cutting Social Security love this argument because raising the retirement age is the same as an across-the-board benefit cut.

Myth 3: Benefit cuts are the only way to fix Social Security.

Reality: Social Security doesn’t need to be fixed. But if we want to strengthen it, here’s a better way: Make the rich pay their fair share. If the very rich paid taxes on all of their income, Social Security would be sustainable for decades to come. Right now, high earners only pay Social Security taxes on the first $106,000 of their income. But conservatives insist benefit cuts are the only way because they want to protect the super-rich from paying their fair share.

Myth 4: The Social Security Trust Fund has been raided and is full of IOUs

Reality: Not even close to true. The Social Security Trust Fund isn’t full of IOUs, it’s full of U.S. Treasury Bonds. And those bonds are backed by the full faith and credit of the United States. The reason Social Security holds only treasury bonds is the same reason many Americans do: The federal government has never missed a single interest payment on its debts. President Bush wanted to put Social Security funds in the stock market–which would have been disastrous–but luckily, he failed. So the trillions of dollars in the Social Security Trust Fund, which are separate from the regular budget, are as safe as can be.

Myth 5: Social Security adds to the deficit

Reality: It’s not just wrong — it’s impossible! By law, Social Security funds are separate from the budget, and it must pay its own way. That means that Social Security can’t add one penny to the deficit.

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Posted in Retirement Security, Social Security

Comments

  1. Winslow P. Kelpfroth says:

    This post sounds like it was written by MoveOn.org.
    Fewer retirees now than in 1940? Doubtful, even allowing for the US population increase. Example: In 1990 the US had 38K people over 100. In 2009 that number had increased to 104K. People, especially fit people, are living longer in retirement. I can just look down my street and see dozens of my neighbors living 10-15 years past their initial cancer diagnoses when 50 years ago they wouldn’t have lasted a year.
    Can’t go broke because the system holds IOUs in the form of Treasury bonds? See Greece, Ireland, Italy, Spain. Those retirement systems are backed by the full faith and credit of their respective governments, too. It’s nowhere guaranteed that the US economy will always be the dominant one, folks. Unfortunately, it looks like the Social Security System’s models don’t allow for that possibility.

    • Winslow, since you’ve already posted essentially the same comment on a different post, I’m just going to give you the same reply:

      The very fact that U.S. Treasuries are being sold at low interest rates tells you that investors don’t see a default anywhere on the horizon for the U.S. If they did, they’d demand higher rates. Apparently, you don’t see it as much of a risk either, because you yourself would buy them – except for that very same low rate. So that particular bucket doesn’t hold water.

      The number of workers per retiree doesn’t matter, period. What matters is whether Social Security can fund its obligations – and there is every indication it can. Every year, the Social Security Trustees project the program’s finances 75 years into the future. Doing so requires making numerous assumptions about economic growth, productivity, wages, fertility, longevity, immigration rates, and other factors. Three different scenarios are created, although often the projections from the Intermediate scenario are reported as certainties.

      The intermediate assumptions for 2010 project that the Trust Fund will to continue to grow until 2025. From 2025 to 2037, Social Security will draw on the Fund principal to finance the retirement of the baby boomers, as intended by the Reagan‐Greenspan plan. In 2037 the assets of the Trust Fund will be spent down and payroll taxes alone will cover 78% of benefits.

      If the Trust Fund is exhausted in 2037 as the Intermediate forecast projects, payroll taxes alone at the current level would cover benefits averaging $19,300 – about $1,600 more than today’s typical retiree receives after inflation. That’s because over time, wages go up a little faster than inflation because of gains in productivity – the amount a worker can produce in an hour’s work. By 2037, average wages after accounting for inflation are expected to rise from $43,000 in 2010 to $60,000. Typical retirement benefits are projected to increase from $17,676 to $24,700 annually.

      But the Intermediate projection is just that – a projection, and a conservative one at that. Under the slightly different assumptions of the “Low Cost” scenario, the Trust Fund will never be depleted. In fact, it will begin growing again by the 2050s and continue growing through the rest of the century.

      You can spin “what if” scenarios if you’d like, – but at some point, you have to back them up with facts, Winslow. And these are the facts about Social Security. Take a look.

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