The Top 10 Myths About Social Security

In honor of Social Security’s 79th birthday, here’s an update to a 2011 blog post refuting Social Security myths spread by critics of the program.

  1. Social Security costs are escalating out of control. No. Costs are projected to rise from roughly five to six percent of GDP before leveling off.
  2. Americans want benefits but aren’t willing to pay for them. Wrong again. Americans across political and demographic lines support paying Social Security taxes and prefer raising taxes over cutting benefits as a way to close the projected shortfall. A popular option is raising taxes on high earners, since earnings above $117,000 aren’t taxed. But Americans prefer to close the gap on the revenue side even if they’re asked to pay more themselves.
  3. Our children and grandchildren will drown in debt if we don’t cut the social safety net. No, future generations will drown in debt if we don’t address health cost inflation. Though the Affordable Care Act and other factors have slowed costs considerably, this isn’t enough—we need to get costs closer in line with those in Europe and Canada. Cutting Medicare or Medicaid benefits just pushes costs onto the private sector. And there’s no reason to lump Social Security in with other programs since it’s funded through dedicated taxes and prohibited by law from borrowing.
  4. The Baby Boomers will sink us. On the contrary. We saw them coming. Social Security began building up a trust fund in the early 1980s in anticipation of the Boomer retirement. The trust fund is projected to keep growing for another five years to almost $3 trillion, not quite enough to get us through the peak Boomer retirement years (the Great Recession took a bite). 
  5. We’re living longer, so we need to work longer. No—only some of us are living longer, and most of us are already working longer. Gains in life expectancy have been concentrated among people with higher incomes and more education, especially men. Meanwhile, the labor force participation of older workers is close to the postwar peak.
  6. We just need to save more for retirementThat’s a reason to expand Social Security, not shrink it. The average household has a retirement income deficit of $90,000, a conservative measure of how far behind they are in saving and accumulating benefits for retirement—and that’s without further cuts to Social Security. Retirement insecurity is increasing due to earlier Social Security cuts and the shift from secure pensions to do-it-yourself retirement accounts. If anything, budget hawks should look to trim 401(k) tax breaks, two-thirds of which go to taxpayers in the top fifth of the income distribution. These appear to have little impact on saving, a finding recently corroborated with evidence from Denmark.
  7. Seniors are greedy. No, they’re struggling to make ends meet. The “greedy geezer” myth rests on the fact that seniors appear to have lower poverty rates than children and working-age adults, though an improved measure that takes into account higher medical expenses for seniors shows that the three groups have similarly high poverty rates. In any case, cutting Social Security would increase poverty for all. Older households have lower incomes but more savings than younger households. However, these savings are unequally distributed and for most families do not come close to allowing them to maintain their pre-retirement standard of living through retirement.
  8. Benefits are generousNo, they’re modest and shrinking. The average retirement benefit is $15,600 a year. For a medium earner retiring at 65, benefits currently replace 40 percent of pre-retirement earnings, down from 52 percent in 1981. This replacement rate is scheduled to drop to a meager 36 percent in 2025.
  9. We’ll just cut benefits for people who don’t need them. No, proposed cuts would hurt the middle class now and the poor later. Because benefits for high earners are modest and wealthy retirees few, supposedly “progressive” plans actually go after middle-class benefits in order to yield significant cost savings. Social Security’s enduring popularity rests on the fact that people earn the right to participate by working and contributing, in keeping with core American values. Moving from a universal social insurance program toward a need-based program would cause Social Security to wither away like SSI or become a political football like Medicaid. An even worse idea is cutting cost-of-living adjustments, which would have an impact on all beneficiaries, but especially the oldest old, who are also the poorest old.
  10. Social Security won’t be there for us. Only if we fall for these arguments. Social Security is fully funded through 2033. Even if nothing is done to shore up the system, Social Security can continue to pay three-fourths of promised benefits after the trust fund runs out. Though this would be far from ideal, it’s certainly no reason to preemptively cut benefits. Instead, we should devote a small portion of the economic growth projected over Social Security’s next 79 years to increase contributions and make sure promised benefits are fully funded.

  • First of all — excellent post! — thank you.

    Regarding Myth #1 – Is it true that the disability fund is projected to be under-funded by 2016, and benefits could be cut by 20 percent?

    Regarding Myth #2 – Rachel Greszler at the Heritage Foundation wrote (link below) that “Raising the payroll tax cap (from its current level of $117,000) should not be an option. Raising, or even eliminating, the payroll tax cap would not solve Social Security’s financial shortfalls, but would impose economically damaging marginal tax rates on middle-income and upper-income earners.”

    I sent her an email saying, “Middle-income earners do not make $117,000 a year. According to the Social Security Administration (link below), 95% of all wage earners make less than $117,000 a year. Raising, or even eliminating, the payroll tax cap WOULD help solve Social Security’s financial shortfalls. The top 0.01% generates most of their income from capital gains, which is not only taxed at a lower marginal tax rate than ordinary income, but is also exempt from ALL Social Security taxes.

    The wages for middle-income earners (the median wage) is $27,519 a year — and because of dual and multiple incomes, the median household income is $53,891 (Source: Senier Research).

    I also pointed out to Rachel Greszler at the Heritage Foundation that “There is a lot more fraud being committed by high-paid doctors, hospital CEOs and insurance executives in the Medicare system than there are workers who can’t physically make it to the finish line — when then are forced to try to live on meager monthly disability checks (and that’s only if they are ever finally approved.)

    Rachel Greszler at the Heritage Foundation wrote another article (link below) saying, “The DI [disability] program has increasingly become an early retirement and long-term unemployment program. Such abuses undermine its integrity and financial stability…Congress should act now to reform the DI program to preserve it for the truly disabled while limiting unnecessary awards and encouraging beneficiaries to return to work.”

    I debunked her in these 4 posts:

    Report: Disability Claims and Awards Declined

    Record Number of Boomers Left the Labor Force

    The Last Word on Social Security Disability

    8.9 Million on Disability vs. 92.5 Million not in Labor Force

  • Michael678

    I always like to include this just to remind people,

    Here is President Reagan insisting in a 37-second video that Social
    Security has its own separate funding source and has nothing to do with
    the deficit.

  • Brian Dombeck

    With the dysfunctional political system we have, it is hard for me to feel optimistic about social security. I’m in my mid twenties. It’s frustrating to be compelled to invest in social security with the knowledge that I will almost surely get a negative return through no fault of my own.

  • Mitch Taylor

    #4 Is incorrect. While everyone knew the Baby Boomers were going to negatively impact Social Security, not enough was done to shore up the system. The changes in the 1980s were a start but were insufficient. This isn’t just a problem of too many Baby Boomers as it is also a problem of too few births in the years following the Boomers, stagnating wages in the middle class, falling participation rates and the Great Recession.
    #5 is incredibly wrong. Someone who is 65 today has a life expectancy of 85. That doesn’t mean they are most likely dead at 85. It means they have a 50/50 shot of living beyond 85. There is a roughly 1/3 probability that one spouse of a couple who is 65 today will see age 95! Social Security is not built for that.
    The author has the statistics basically backwards as MOST people are living longer but only SOME are working longer. Those who are working longer generally are not doing this out of choice but economic need.
    #2 is a questionable assumption/conclusion. Americans may support raising SS taxes, but only if those taxes are applied to someone else. This is the mentality that infects and infests our current political realities.
    #1 The answer ignores the reality of the Social Security Law. SS can only pay out what it takes in. It can’t borrow. So when the trust fund is exhausted and the system can only rely on current payroll tax revenue, benefits will have to go down. And here is where political expediency will defeat economic prudence. If we can’t vote in more intelligent national office holders than we have recently, these idiots will borrow more to pay for Social Security instead of just fixing the problem. because fixing the problem will be painful. Fixing the medical problems will be even more so.
    #7 Is an issue of relativity. The point depends on WHICH seniors you choose to highlight.
    #9. Here again the author seems to equate two unrelated issues. Those who have been very successful in life have no business receiving SS benes. I have met EXTREMELY wealthy individuals who collect Social Security. SS should absolutely be means tested.

    • Mitch, I write on the issue of SS reform, and welcome commenters who put as much thought and research into your comments.

      I can’t say that I agree with you on #9. One of the founding principles of SS is that it should not have a means or needs test. Things change over time, but at some point we cease to have Social Security, and need to find a new name.

      I publish most of my articles on FedSmith, but have multiple outlets.

  • benleet

    I suggest looking at Morrisey and Sabadish’s other longer report, the Retirement Inequality Chartbook,
    A few details:
    “In 2010, households in the top income-fifth accounted for 72 percent of total savings in retirement accounts (Figure 19).” And figure 11, showing age 56 to 61 only 57% have any retirement savings, and “Nearly half of households have no savings in retirement accounts, and for the other half, savings are very unevenly distributed. A household in the 90th percentile of the retirement savings distribution has [$239,000] nearly 100 times more retirement savings than the median (50th percentile) household [$2,500], which has a negligible amount. The top 1 percent of households have over $1.3 million in retirement account savings (not shown).”

  • paul daniel

    There is always so much talk about only one area of social security benefits I have yet to hear anyone say anything that relates to why it was created and exactly what it does and how its done if you answer those questions thoughtfully you’ll understand there is absolutely no way for social security to fail… unless they cease to pay anything out and it definately doesnt need to have anyone paying into it

  • ourdemascam

    The Affordable Care Act has “slowed costs considerably”? How’s that? By forcing everyone to pre-pay for a seat on the same out of control train? You surely have no evidence to back up that claim.