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3 Big Myths About Social Security

Social Security is in the news again, due to cost-saving recommendations from the President's deficit commission. Once again we'll hear the usual cynical or misinformed myths that I encounter constantly in my travels across the country giving workshops on retirement planning. These myths just aren't true, so let's bust 'em!

Myth #1: I won't get anything from Social Security.

I hear this frequently from people in their twenties and thirties. I used to think this, too, when I was in my twenties and thirties. Now I'm old enough to belong to AARP -- and I know better. Social Security is the most popular federal program -- ever. Our politicians tremble when they think about only slightly cutting Social Security benefits -- they know the backlash they'll get from their constituents -- so eliminating it altogether is out of the question.

The recent presentation by the deficit commission contained estimates from the Congressional Budget Office that showed if Congress does nothing about addressing Social Security's long-term funding problems, then benefits in 2037 would need to be reduced by 22 percent so that FICA taxes in 2037 can pay for the benefits due then. That hardly sounds like an elimination of Social Security! And, I'm optimistic that Congress will act to address the funding issues before 2037 -- that's exactly what they're considering now with the deficit commission.

If you're in your twenties and thirties and you really believe you won't get anything from Social Security, then you should be saving like crazy now to replace the benefits you think you'll lose later. That means saving at least an additional 15 percent of your paycheck just to replace the Social Security benefits that you think you won't get.

And you'll need to save a lot more than 15 percent of your paycheck if you want a retirement income that's higher than what Social Security provides -- a goal recommended by most retirement planners. Yet retirement saving rates by most Americans of all ages are far below 15 percent of their paychecks, so there's a big disconnect.

Myth #2: I should take Social Security as soon as possible to lock in my benefits, since Congress will soon reduce them.

Yes, it's true that Congress is considering reductions in Social Security benefits to balance the long-term deficit that the program is facing. But most of the significant benefit reductions would impact people who are now in their twenties, thirties, and forties, not people who are currently eligible to start benefits, which is age 62 or older.

For the current round of cuts, our politicians are analyzing benefit reductions that would impact people under age 55. Even if they change benefits for people above age 55, the changes would apply according to your age and wouldn't depend on whether you had already started your benefits.

If you're currently considering when to start your Social Security benefits, you can safely ignore changes under discussion and focus on what works best for you. For many people, delaying the start of their Social Security benefits will increase the income they receive over their lifetime.

Myth #3: Congress has raided the Social Security trust fund.

The use of the word "raid" implies that greedy politicians are inappropriately grabbing money from the Social Security fund to pay for their favorite pork projects. In fact, the Social Security trust fund is invested in special U.S. Treasury bonds, which are used to fund the general operations of the federal government. There is a legal mechanism and obligation to pay back the interest and principal on these bonds, just like any other U.S. Treasury bond.

It's likely that use of the word "raid" comes from a concern about the growing federal debt. At the beginning of 2010, the U.S. debt was $13.3 trillion, which included $2.5 trillion of U.S. Treasury bonds in the Social Security trust fund. In prior years, FICA taxes exceeded Social Security benefit payments, and that excess was invested in the Social Security trust fund. This excess was also used, however, to reduce the annual federal budget deficit figure that was announced to the public. This surplus disappeared in 2010, and now the annual Social Security benefit payments exceed FICA tax collections.

It's entirely appropriate to be concerned about the total level of federal spending and the growing federal debt. However, use of the word "raid" is inaccurate and inflammatory, and is an unnecessary distraction from the real issues of the federal debt.

If you hear something about Social Security that sounds inflammatory, consider the source. Do they have a vested interest in spreading inaccuracies? A lot of times, that will be the case. It's also possible that they are cynics who are simply recycling these common myths without learning the truth for themselves.

Please take the time to become informed about these very important federal programs that help with the financial security of our senior citizens -- and with the security of the most important person -- you!

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