Statistics show that when you retire there’s a very good chance you’ll be somewhat reliant on Social Security to make ends meet. Data from the Social Security Administration (SSA) finds that 62% of current retirees lean on the program to provide at least half of their monthly income. Meanwhile, survey results from Gallup suggest that 84% of future retirees will in some way lean on the program when they eventually file for benefits.
Yet, what you might find surprising is that despite being such a vital financial pillar during retirement, myths, misconceptions, and falsities about Social Security abound. And what you don’t understand about Social Security can indeed cost you.
With this in mind, here are five concrete truths about Social Security that you can take to the bank.
1. It’s not going bankrupt
Let’s start with the biggie: Social Security isn’t going bankrupt. No matter what you’ve read, the program is incapable of bankruptcy unless Congress were to change how it’s funded.
According to the latest Trustees report, the program is going to begin paying out more in benefits than it collects in revenue this year. By 2034, Social Security’s $2.9 trillion in asset reserves are projected to be depleted. But this excess cash isn’t needed for the program to survive. Its depletion is merely a signal that the current payout schedule isn’t sustainable. Cutting that payout by 21% for existing and future retirees in 2034 would offset the expected $13.2 trillion cash shortfall between 2034 and 2092, per the report.
You see, even if Social Security has no excess cash, and therefore earns no interest income from its asset reserves, it still has two other sources of ongoing income: the 12.4% payroll tax on earned income, and the taxation of benefits. The former was responsible for more than 87% of total revenue in 2017, meaning that as long as Americans keep working, the program will continue to collect funds that can be disbursed to eligible beneficiaries.
In other words, you’re going to get a benefit… if you qualify for one.
2. It’s not an entitlement program
That leads to the next point: Social Security isn’t an entitlement program. Just because you’re an American citizen, it doesn’t mean you’re entitled to the retired worker benefit or disability and survivor’s insurance protection afforded to workers.
You earn the right to receive this coverage through, you guessed it, work. If you earn 40 lifetime work credits, you’ll qualify for a retired worker benefit later in life. Here’s the catch: No more than four credits can be earned in a given year. That means you’ll need a minimum of 10 years of work to qualify for a Social Security benefit. To be clear, though, the SSA will take your 35 highest-earning, inflation-adjusted years into account when calculating your benefit, so you’ll probably want to work past just 10 years.
The upside, however, is that it’s really easy to earn these credits. In 2018, you’ll receive one lifetime work credit for each $1,320 in earned income. Or, in other words, $5,280 in wage income will max out your credits for the year.
3. Undocumented immigrants aren’t receiving Social Security benefits
Despite what you may have heard, undocumented immigrants do not receive a benefit from the Social Security program. If anything, the opposite has proven true. An analysis by AARP in 2010 found that the wage income of undocumented immigrants led to $12 billion being collected by Social Security’s payroll tax. Mind you, since these folks aren’t citizens, they have zero chance of collecting a benefit when they retire.
This misconception likely arises because Americans are conflating Social Security’s Old-Age, Survivors, and Disability Insurance Trust, which covers retired workers, the disabled, and survivors, and Supplementary Security Income, or SSI. SSI typically provides income to the disabled, the blind, and those over age 65, but it can also be leaned on by noncitizens who are refugees, asylum seekers, and those lawfully admitted for permanent residence in the U.S.
Though the SSI program is overseen by the SSA, it has completely different sources of funding. Therefore, Social Security, as you’re familiar with it, is not providing benefits to undocumented immigrants.
4. Congress hasn’t stolen a red cent from Social Security
While we’re on the subject, another truth is that Congress didn’t steal or raid Social Security’s coffers. And no, paying back all the money it “took” wouldn’t put the program on any better footing than it’s on now.
As noted, Social Security has $2.9 trillion in asset reserves. However, this cash isn’t just sitting in some vault collecting dust and losing purchasing power to inflation. Instead, the SSA primarily purchases special-issue Treasury bonds from the federal government at various yields and maturities with this cash. In doing so, the program generates interest income that helps cover its costs. Last year, it generated $85.1 billion in interest income, and will receive an estimated $78 billion to $83 billion in interest per year through 2027, per the Trustees report.
Think of it this way: If you purchase stocks, a house, or any other asset with your cash, the entity you gave that cash to in order to buy that product didn’t “steal” your cash. You simply transformed the state of your asset. Social Security may not have $2.9 trillion in cold, hard cash, but every cent is nonetheless accounted for via its bond holdings.
5. Cost-of-living adjustments are inherently flawed
Truth be told, seniors have been getting the short-end of the stick when it comes to cost-of-living adjustments (COLA) for some time, and that’s unlikely to change. Or in plainer English, the raise that Social Security is supposed to pass along to its beneficiaries each year to match inflation simply isn’t keeping up with the rising cost of goods and services.
The problem with COLA is its tethered measure of inflation: the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W is an inflation measure that focuses on working-age urban and clerical workers, and not the elderly, despite the fact that retired workers make up around 70% of aggregate beneficiaries. This leads to important expenditures, such as medical care and housing, not being factored in nearly as much as they should be for seniors. The end result is seniors have seen their purchasing power decline by 34% since 2000, according to a recent analysis by The Senior Citizens League.
Worst of all, there is no easy way to fix Social Security’s COLA problem. No matter what is done, someone loses out. This means it’s unlikely that a COLA fix will be implemented anytime soon.