Myths and Facts About Social Security Today

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Thought people might like to see this. It was sent to me by a different recently retired SSA bigwig.


From: John Trout, One of our stellar Area Reps (Retired Social Security Big Guy)

Myths and Facts About Social Security Today

Myth #1: There is a Social Security crisis.

Facts: In 2004 the Social Security Trust Funds took in over $150 billion more than they paid out, reaching a total accumulation of about $1.7 trillion. The Trust Funds will continue to grow for the next thirteen to fifteen years, reaching a total of nearly $4 trillion by 2018 or thereabouts. At that time, those trillions of dollars in reserve funds will begin to be drawn down to fund benefit payments, in accordance with a plan developed in 1983 by a bipartisan commission chaired by current Federal Reserve Board Chair Alan Greenspan, and signed into law by President Reagan.

.Myth # 2: Social Security will go bankrupt.

Facts: This claim is based mostly on predicting that the American economy will perform about half as well over the next 75 years as it has performed over the last 75 years (including the Great Depression). No one knows for sure how well our economy will perform and most economic predictions turn out to be inaccurate. The economy is just as likely to perform as well or better in the future as it has in the past, and if it does Social Security will not go bankrupt at any time. If the economy performs as poorly as the pessimists predict, Trust Fund revenues would equal 75 percent of benefit costs by 2042 to 2052.

Myth #3: The Trust Funds are not real.

Facts: The U.S. Treasury bonds owned by the Trust Funds have the same legal and financial status as any other Treasury obligation, such as U.S. Savings Bonds, Treasury notes, etc.: they are backed by the full faith and credit of the United States. They are as real as the $500 billion in Treasury bonds owned by the People’s Republic of China. For the Federal government to default on these obligations would be to declare national bankruptcy.

Myth # 4: The Federal government cannot pay back the $4 trillion it will owe the Trust Funds around 2018.

Facts: If the Federal budget is still in deficit around 2018, redeeming the Trust Fund’s Treasury bonds will require increased borrowing or increased taxation. This would not be a “Social Security crisis” but a “Federal budget crisis” caused largely by the record-level Federal deficits created under the Bush administration.

Myth #5: The Trust Funds are paid low interest.

Fact: By law, the Trust Funds earn the average rate of return of all Treasury bonds.

Myth #6: Social Security pays a low rate of return for taxes paid.

Fact: Social Security was designed as an earnings insurance plan, not an investment plan, so any comparison of Social Security with the stock market is like comparing apples and oranges.

Myth #7: Social Security cannot pay benefits promised in present law indefinitely.

Facts: Social Security’s financial condition depends heavily on the future performance of the U.S. economy. If the economy grows as fast as it has historically, Social Security will be able to pay full benefits indefinitely.

Myth #8: The fact that in the future there will be only two workers for every Social Security beneficiary means that full benefits will not be affordable in the future.

Facts: While the ratio of workers to beneficiaries is shrinking, as it was expected to since the beginning of the program in the 1930's, the average wealth of workers is growing, as it has been, with some interruptions, throughout our history. That plus continued strong economic growth would make Social Security affordable indefinitely.

Myth # 9: Diverting some portion of Social Security benefits into private investment accounts is guaranteed to result in higher retirement income in the future.

Facts: No Social Security private investment plan includes any guarantee that it will result in higher benefits for all investors. Some may do better than they would under Social Security, some may do the same, some may do worse. Those who do worse would have to rely on family, private charity, or public assistance to meet their basic needs.

Advocates of private accounts use two sets of books, one pessimistic about the future economy when predicting Social Security is “heading for bankruptcy”, the other optimistic about the future economy when predicting that private accounts will result in higher retirement incomes. If the stock market and the economy were strong enough to make all workers better off than under Social Security, those same factors would ensure that Social Security is financially solvent. If the economy performs as poorly as privatizing advocates predict when they say Social Security will not be able to pay future benefits, those same factors will mean that private accounts will not perform as well as the advocates claim. There is only one U.S.

economy, not a shell game.

Myth # 10: Social Security privatization plans include no benefit cuts.

Facts: Privatization plans include reductions in future benefits that would have been funded by the portion of Social Security taxes diverted into private investment accounts. There have also been recent proposals to reduce all future Social Security benefits through changes in the basic benefit formula. No benefit cuts are planned for current retirees, but no plan has been offered to date to make up for the revenues needed to pay for current benefits–revenues diverted into private accounts.

Myth # 11: Private retirement accounts would prevent any future financing problems in Social Security.

Facts: Diverting Social Security taxes into private accounts reduces the revenues needed to pay current benefits, requiring other sources of revenue or benefit cuts to make up the increased Social Security deficit. In other words, private accounts make Social Security’s financial condition worse, not better.

Myth # 12: Private retirement accounts would be a better deal for African-Americans than Social Security.

Facts: Social Security benefits replace a higher percentage of earnings for people with lower average earnings, including many African-American workers.

African-Americans also benefit disproportionately from Social Security survivors and disability benefits, in relation to their percentage of the population. Those with lower average earnings would have the smallest private investment accounts, no more than a few hundred dollars a year, so their returns on those accounts would be relatively small.

Myth # 13: Federal employees already have a private retirement account option similar to the Bush proposal.

Facts: Federal employees can invest in private retirement accounts in addition to paying full Social Security taxes, but they cannot divert part of their Social Security taxes into those accounts.

Myth #14: Raising Social Security taxes will harm the economy.

Facts: Social Security taxes have been increased many times since the program was enacted in 1935 and there is no evidence any past increases have resulted in any harm to the economy.

Data Sources: Annual Reports of the Trustees of the Social Security Trust Funds (SSA.gov), Congressional Budget Office Studies and Reports on Social Security Financing (CBO.gov), General Accounting Office Studies and Reports on Social Security (GAO.gov).

[BlueInRed]

1. kick

[applegrove]

2. I agree with all - I just wonder about the World Stock Market

I agree with all - I just wonder about the World Stock Market.

Yesterday, in Canada, the Business elites were trying to push the Canadian Government to remove the cap on Canadians investing their private retirement funds (RRSPs) (those private accounts created on top of the Canadian SS plan) in foreign investments. Right now you can forgo taxes of a percentage of your income and invest that in and supplementary RRSP account and invest that in the stock market. But 70% of those investments have to be in Canadian Stocks and Bonds. Our business community wants to change that. And the noise machine is starting - in Canada at least.

Is this why the two sets of books? Because the Western Economies will tank and see only half the growth of the last 75 years in the next 75 years as the emerging economies of China, Russian, Brazil & India heat up? So Bush and friends want that money out of SS and American investment and into the World Stock Market? And that is why the growth rate would be so much better for the invested stocks vs. the SS; the private investment would be in World Markets the SS invested in the American Economy.

If this is the case - and the Bush White House has assumptions that there will be mild inflation/deflation for the whole of the next 50 years for the American economy - we should know eh? So that we can get out of debt too (just like the Bush is trying to do with the SS it owes the people). Because debtors always take a bath (a horrid thing) when deflation happens.

Why else would Canadian business be pushing Canadian private accounts (which exist on top of our old SS plan) to open up to World Investment?

And if this is the case should not the rich and the corporations go to the middle class hat in hand and say: "we really need your help - we need all of your wealth investable in the far east - so that we can get a foothold in the emerging giant markets there" (estimated to be 10 times greater than the combined markets of today's Western nations). And beg the American public for that very important help. And then pay some DAM taxes!!!

Cause if these are the reasons why there are 'two sets' of books a Shell Game is going on and the debate about SS is not even taking into account the right assumptions. And how can you argue a policy issue when you do not have the facts: your assumptions are the old ones. No wonder Bush will not release his plan - he doesn't want the Democrats to know what their (new) assumptions are. And then they can say: "oh- you Democrats are wrong about SS security - here is what is really going on".