Social Security: Basic Facts

On Thursday if people want I can go over this in more detail.  See links for better explanations, but the basic points are:

  1. Social Security is not a pension plan.  The taxes you pay as you work do not accumulate in some account to be returned to you with interest when you retire.  The program has never worked that way.  Instead, it’s pay as you go.  This means that the taxes workers pay into the fund go right back out the door that same year to current retirees. 
  2. This means Americans are part of an intergenerational compact. You help today’s retirees and tomorrow’s workers will help pay you for your Social Security in return.  
  3. Social Security is NOT going broke.  The program is on a sound footing for at least 25 years.  After that, a surplus of funds that has been building (by design) up since 1983 will be exhausted and retirees will have to rely solely on current payroll taxes for their benefits.  Starting in about 2037, therefore, the program will only be able to pay out about 75% of promised benefits — unless changes are made, either higher payroll taxes for some, or lower benefits.
  4. Social Security is NOT bankrupting the government or driving federal deficits.  Medical costs, mainly for Medicare, are.  Social Security has its own dedicated funding source, the FICA tax.
  5. The surplus money that FICA is collecting is held in a trust fund and in the form of U.S. treasury bonds.  Some people think that means it contains nothing but an empty promise to pay.  But, that is the same promise that foreign central banks, thousands of businesses, and U.S. pension funds and other investors think will be honored for their T-bonds.  It’s a pretty solemn promise.  the U.S. government has never missed a debt payment and T-bonds carry a zero rate of default.  If the trust fund bonds are worthless, then everybody everywhere is wrong.

For more on Social Security, I recommend the following, even though I think some of them fail to acknowledge that there is a need for a small fix to keep the program solvent in the future.

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