After seeing the Boomers threads recently, it's time for another Social Security thread!

Since every Social Security thread seems to have the same myths and misunderstandings, let's start with this:

1. They spent the Social Security Trust Fund!



Think of the Trust Fund as a bank account. When you deposit money into your account, it doesn't matter if the bank spends that money or not, so long as they credit your account and pay you back. Similarly, when that money is spent from the General Fund, it does not affect the balance of the Trust Fund. It does, however, lead to intragovernmental debt because that amount will have to be paid back. Which leads us to myth two:

2. They'll never pay that back!

We already are. Without the interest from the Trust Fund, Social Security would have been in the red since 2010[1]. And the amount of interest we've already paid is staggering:

Historical Net Interest from the Trust Fund, in billions[2]:

Note that the Trust Fund balance in this report is $2.82 T, and the interest paid since 1995 is $1.81 T - that interest is 64% of the Trust Fund!

3. We can just put the money in a lockbox!

The lockbox is a fantastic idea! If you have a time machine. The concept of a lockbox is to prevent it from being spent once it's in the General Fund. Note that even if you do have a time machine and go back, it wouldn't affect the Trust Fund one bit, it would only serve to reduce the national debt we will incur from paying the Trust Fund back from the General Fund. And it's too late - Social Security already has more expenditures than income [1]. There's no money left to lock up!

4. They've said this before and the program was fine!

Well, partially right. They have said this before, and it required massive changes to keep the program solvent[2]:



Notice that the Trust Fund had only about three months' funds in reserve! Reagan had to accelerate SS tax increases, increase the retirement age, delay COLAs for recipients, and taxed SS income[3].

It's also important to note that, even when the Trust Fund is depleted, Social Security is projected to be able to pay out 79% of anticipated benefits[4]. However, the SSA's projections have historically been optimistic and public support for allowing these cuts to occur is very low.

5. Disability caused this!

No. Just no. By law, the OASI Trust Fund and Disability Insurance Trust Fund are completely separate entities. [1]

6. Rich people caused this!

It is true that there is a cap for Social Security payroll taxes, currently at $128,400. However, rich people actually get a raw deal with Social Security. You can calculate lifetime SS payroll taxes paid and benefits received with this handy dandy calculator. The rich receive a smaller portion of what they paid in than the poor: SS benefits are "progressive" [5].



7. We self-employed people pay more!

If you only look at the amount the self-employed pay directly and what wage earners see taken out of their paycheck, this would seem to be true. However, employers take money out of their employee paychecks and pay that tax directly. Just like how a company isn't going to "eat" a minimum wage hike, accounting departments don't "eat" the 6.2% Social Security employer tax, nor the 1.45% employer Medicare tax. The Congressional Budget Office determined: "employers' share of payroll taxes is passed on to employees in the form of lower wages than would otherwise be paid[6]."

8. It will only cost you a 3% increase to fix it, that's cheap!

There are a lot of BS cheap and easy "solutions" to fixing Social Security floating around. Here's a quote from the SSA:
That 2.78% increase isn't an increase in the tax rate but in your total tax burden. As such, the average age Millennial (31) who makes median income $44,980 [7] and retires at 67 can expect to pay an additional $45,016 in Social Security taxes because of this if it had started in 2018. If we delay until 2034, he will have to pay an additional $62,666!

9. Fine! I want the money I paid back into it, then!

There isn't any money. Dividing payroll taxes paid in by the total expenditures for different time ranges[8 ]:

Range	Included Years	Percent Spent [Payroll taxes / Expenditures]
Previous 5 years	2013-2017	111.9%
Previous 10 years	2008-2017	110.6%
Previous 15 years	2003-2017	103.8%
Previous 20 years	1998-2017	100.4%
Previous 25 years	1993-2017	99.7%
Previous 30 years	1988-2017	98.7%

Notice that effectively ALL of the money being put into SS via payroll taxes in the last 30 years has been immediately spent.

Even if we were to instantaneously pay back ALL monies in the Trust Fund tomorrow and distribute it between those who are paying in, the average would be:
Trust Fund Value ($2.82T) / (174,000,000) payees[1] = $16,207.

10. We'll just get rid of it!

Good luck. The AARP is the largest interest group in the United States, with over 38 million members[9]. Both GOP and Dem party platforms propose continuing Social Security with no cuts to benefits[10][11].

Polling by the SSA indicates that half of the 65+ population live in households where >=50% of their income comes from Social Security, and in a quarter of 65+ households, it's 90% of their income[12].

Proposing cuts to Social Security is political suicide. A recent poll administered by Pew [13] found that 66% of Americans would support a candidate who wants to expand Social Security, including 55% of Republicans.

Boring references for nerds:

[1] 2018 SSA Trustees Report, pg. 2
https://www.ssa.gov/OACT/TR/2018/tr2018.pdf

[2] Ibid, [Table VI.A1 - Operations of the OASI Trust Fund, Calendar Years 1937-2017]

[3] CRS "Report for Congress - Summary of Major Changes in the Social Security Cash Benefits Program" (pgs. 16-17)
https://www.ssa.gov/history/pdf/crs9436.pdf

[4] Ibid, pg. 5

[5] Center on Budget and Priorities, "Policy Basics: Top Ten Facts about Social Security" (2018)
https://www.cbpp.org/social-security-benefits-are-progressive-2

[6] Congressional Budget Office, "Historical Effective Federal Tax Rates: 1979 to 2005"
http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/88xx/doc8885/12-11-historicaltaxrates.pdf

[7] Bureau of Labor Statistics, "USUAL WEEKLY EARNINGS OF WAGE AND SALARY WORKERSFIRST QUARTER 2019"
https://www.bls.gov/news.release/pdf/wkyeng.pdf

[8 ] Calculated with dataset from reference [2], using this table:

Range	Cumulative Payroll Taxes (B)	Cumulative Spending (B)
5	3331.8	3727.3
10	6007.9	6642.0
15	8539.4	8867.6
20	10625.1	10669.3
25	12185.5	12154.6
30	13481.0	13300.1

[9] Wikipedia AARP (yes I got lazy)
https://en.wikipedia.org/wiki/AARP

[10] GOP Platform - Government Reform, "Saving Social Security"
https://www.gop.com/platform/reforming-government/

[11] Party Platform - Democrats, "Protecting and Expanding Social Security"
https://democrats.org/about/party-platform/#social-security

[12] "The Importance of Social Security Benefits to the Income of the Aged Population" Social Security Bulletin, Vol. 77 No. 2 (2017)
https://www.ssa.gov/policy/docs/ssb/v77n2/v77n2p1.html

[13] Public Policy Polling, "National Social Security Poll"
https://socialsecurityworks.org/wp-content/uploads/2018/03/Nat-Social-Security-March-18-2-Results.pdf

How many workers per social security recipient? Is this number forecast to increase or decrease in the next 30 years?

The ratio of workers to beneficiaries reaches 2.2 by 2035, and is expected to decline slowly after that due to longevity increases.

ETA: It's 2.8 now.

We be doomed.

SS is a social welfare program. We pay an extra tax (in addition to federal income tax) to fund the welfare program. The rest of the details don't change that.

And we will pay additional tax to keep it going.......

I'm not reading all that.

All I know is that if there was a box where I could opt out of it and get back everything I've put in so far I'd check it in an instant.

Sure you would.

You don't actually believe that people want out?

I actually believe that people want out.
Unfortunately for them - they are never going to get out.....

Would a smart person take what they would have paid into social security and medicare and put 2/3 into a vangard fund and 1/3 (or less) into a disability insurance plan?

Absolutely.

2nd Wednesday of the month our checks are there.

Payroll tax is over 12% up to nearly $130,000 in earnings. You pay half the employer pays half. So you are losing a minimum of over 6%. If your costs to your employer wasn't so high maybe they'd pay you a higher wage as well.

Figure you have an average job that pays $50,000. (And you know it's going to get higher as time goes on but for this example it doesn't).

6% of $50,000 is $3,000. Figure you work 45 year (what you'll be doing for social security anyways). You put that $3,000 aside every year average 7% return by the time your 65 years old that's pretty damn close to a million dollars.

Do you think you're going to get anywhere close to a million dollars worth of benefits back?

Plus it's going to keep growing, and you can pass it along.

I don't care that people can't put aside $250/month to get the numbers in my example.

Yea, I'd want out.

Is #10 not the only feasible option regardless of how popular it would be?

Wait, where's the bit about how SS outperforms putting the same amount of $ in the market?

I don't give a shit if it's the most sustainable program in the history of man, it's an abject failure that makes people poorer than they need to be because it is specifically designed such that it takes no advantage of long term compounding of interest and investment in things that actually offer a better-than-inflation return. It's also taxed, which is completely backwards as fuck.

Additionally, the corrosive nature of the "government will take care of you, you don't need to think" mindset that programs like SS help create does more damage to our republic than any army ever has, or ever could. As such, it is by definition "unsustainable". Other than that stuff, yeah, everyone is wrong about the SS.

Bend points show the proportion returned based on monthly income.
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As shown above, this is a better depiction.  The more one earns, the more they pay in, but the less they’ll get in return; and even then it’ll be taxed again if SS is just a part of ones retirement income.
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It really is, illustrated factually, socialist security.

They should just tax social security payments at 50%

If you don’t like that

Early withdrawal is 65 and full is 70

Muahahahaha

I discovered the truth about Social Security reading a book by Al Franken: Rush Limbaugh Is a Big Fat Idiot and Other Observations

His young research assistant was dying of cancer so Al Franken let him have a chapter about the Ponzi scheme of Social Security and how people in their early 20's (the book was published around 1995-1996) would never receive Social Security despite paying into it.  It was a really convincing argument, and I have believed it and acted accordingly.  And now 25 years later, the hard facts are coming in. That research assistant was completely right.

In a fucking heartbeat right now. I am under 40. I can do more with that money for my future than the fluberment ever could.

when they started paying out to people who had never paid in, it started to die.

Do you mean survivors benefits in '39, or disability which doesn't affect the OASI?

Survivor payments are around 15% of the total.

I am 42 and have been working and paying in since I was 15. I would gladly forfeit any benefits I might get if they would just let me quit paying anything more going forward.

Our country is doomed. The average person has more month than money and can’t even figure out how to budget for Christmas much less save for retirement.

Of course you would. If there was a box to check to get back everything I spent on ANYTHING I would. Newspapers, coffee, hookers, blow, I want it back.

i know my generation, we are pretty selfish

we’ll end up cutting SS to nothing and the boomers will have to starve or get jobs

give it a few more years

I'm 47, same.

So what does that mean for a 30 year old who retires around 60-70yo ?

People have convinced themselves that voters will never turn against SS. Those people should remember that the biggest champions of the program won't be voting anymore, in great numbers, in another 20 years.. so 'never' may be an overestimation. Maybe not, maybe as other generations approach retirement age they'll become it's new champions...but I don't think anyone loves that program quite like the boomers. They made it a political third rail. Like I said, that won't last long... Not unless someone finds the cure for death.

Good post. All good information.

The biggest myth is that it matters.  As a society, we will never be willing to step over starving dying old people in the street (see India for reference).  That means we will always have social security, welfare or a combination of the two.  Whether they take or out of your check and call it social security or take it out of your check and call it the dole is completely irrelevant.  It will be taken regardless.

I want my money!!!

I will begin to draw SS in approx. 18 months.

All of the details provided here are nice but what's paramount is that you young guys keep working and paying into it so I can get mine.  

Seriously, SS "tax" is one of the costs of doing business here in the states. It can get much worse....ala Germany, France, etc...My MIL was school teacher in Germany and paid about 55% in payroll tax during her career. Of course she also paid $8 gal for gas and 17% VAT on every single purchase.

All of this was tolerable because she knew her pension would be good and that she would have excellent free health care in retirement. That was great except she was lied to. Her pension has been slashed and the public health care is abysmal.  The absorption of the East helped all of it to crumble but the real game changer has been the massive influx of "refugees" who contribute zero to Germany but take everything they can. Someone has to pay for all that and the German GOV has decided that hard working Germans would.

The BL is that if you're relying on SS as a critical component of your retirement you've already made fundamental planning blunders.  Sooner or later our GOV will do exactly what's happening in Europe. It's inevitable when the GOV grows and nurtures a permanent under class, which they are for the votes. Someone has to feed, clothe and house the Goblins and guess who the someone is...

I have always looked at SS as an additional pot of fun money that allows for some toys or a vacation or two per year in retirement and I planned accordingly. Of course my IRAs and real estate aren't safe from GOV reach either but may take a bit longer for the GOV to steal.

This is all you really need to know - the top myth is:

"Social Security is a program you pay into."

No, it's not. It never has been, and it was never intended to be. It is a type of pass-through program akin to a Ponzi scheme, in which money is taken from A and then given out to B. Trust funds and such are only band-aids, attempt to leverage times of surplus "A"s to cover times when there are too many "B"s. That is, when more people are working than collecting, put the excess into an interest-bearing account. Use that to cover when more people are getting paid than the taxes cover. Except that such a plan won't work if you don't reach a point where the taxes at least reach parity with the payouts.

SS tax is just that - a tax. The revenues collected from that tax are then redistributed to others as SS payments. They may use how much tax you have paid to determine what payments you get, but nobody was ever getting their own money back - it was always somebody else's current tax that was being used to pay them.

To those that say, "well, I paid in so I should get my money" - this is entirely equivalent to the statement, "somebody stole from me, so I should be able to steal from somebody else".

How Three Texas Counties Created Personal Social Security Accounts and Prospered

Ida May Fuller - First Social Security Beneficiary

My favorite is: It's my money!

Flemming v. Nestor

5. Disability caused this!

No. Just no. By law, the OASI Trust Fund and Disability Insurance Trust Fund are completely separate entities. [1]

When the fraud ridden disability insurance trust fund runs low, funds are transferred  from  Social Security to cover the shortfall.

I only know the government well enough to know I don't trust them, no matter who is in charge.

I have never expected SS to be there by the time I retire, and who knows at what age I can collect it because that goal post keeps moving.

I have several retirement accounts I have contributed to for the last 20 years or so.

If SS is there for me a decade and a half or so from now, then that will end up being some extra money I did not expect.

But I am not depending on it.

Well thanks for that short but depressing read.

They should've saved for retirement.

When it started the ratio was 13 to 1. Now it is about 2 to 1. The ratio will depend on how many illegal immigrants come in and pay social security doing menial work with somebody else's number. However, once Maria and Jose get to be 60 something and have bad knees and bad backs from working all their life for the Gringo, they will ask for Social Security. Which they will get, because "it is only fair."

SAVE $$$$$$$$$

The only thing I believe about Social Security is that it's best not to count on getting anything from SS. Everything can and will change with one act of congress. My retirement plans are based on not getting anything from SS.

Yup.  If Trump doesn’t win in 2020, the next Democrat administration will open the floodgates on poor, lazy immigrants and we will need to pay more taxes to keep them fat and happy.  Roth IRA’s will be taxed and income taxes will go up.  We’ll also get an additional VAT.

FIFY

Are they proud or ashamed of her story?

Our financial advisor talks with us about SS in our yearly review meetings. I always tell him not to factor anything in from SS. I am not counting on anything back from our government when we retire. If we get anything back from SS, I want it to be over and above what we need or planned for. Fun money, gun stuff, hookers and blow, whatever.

You know it’s a good list when item number one is complete bullshit.

It isn’t a bank account where the bank is reinvesting the money.  It is spent and becomes a line item in the file cabinet of IOUs.  If the bank took the money and immediately gave it away then paid creditors based on new incoming it would be a Ponzi scheme, much like Social Security.

Rather than earning interest it’s just a future liability.

My 10 year old son has never had a social security number. I'm not signing him up for that burden. It's on him if he wants it, its his choice.

For every person that says "he has to have one"... Go away, you're wrong. He even has a passport all the while having no SS number.

I’m 60. Anything I get from SS will be something I don’t have to spend from my retirement account so my kids will get more.

Anyone who depended on SS for their retirement is an idiot. I’m also planning on working in retirement so...

TC

How is saving worthwhile when the interest rate is near zero?  Personally, if the Government subsidizes businesses, then it should subsidize its citizens.  I propose a 7% minimum on personal savings.  Being able to double your money every 10 years, people will be incentivized to save, and they will have more money to deal with the issues of becoming old.