The 5 Biggest Social Security Lies You've Been Told

Myths and misconceptions surround the most-revered social program in the country.

Social Security plays a big role in supporting the financial well-being of seniors in this country. Every year, it pulls more than 15 million retired workers out of poverty and is responsible for helping nearly 9 out 10 seniors make ends meet during retirement.

However, it's also a program that's largely misunderstood. Myths and misconceptions abound regarding the financial health of Social Security and what the future might hold for the program. Below, you'll find five of the most pervasive lies you've been told about Social Security, some of which you might even believe are true.

1. Social Security is going bankrupt and won't be there when I retire

One of the longest-running lies about Social Security is that the program is nearing insolvency. This belief is fueled by the annually released report from the Social Security Board of Trustees that examines the short-term (10-year) and long-term (75-year) outlook for the program.

In the most recent report, the Trustees estimate that Social Security's $2.9 trillion in asset reserves (i.e., its net cash surpluses built up since inception) will be completely exhausted by 2035. Further, the Trustees foresee $16.8 trillion in unfunded obligations between 2035 and 2094.

The assumption is that if Social Security's asset reserves are depleted, the program will go bankrupt, and no one will receive benefits any longer. Thankfully, this conclusion is all wrong.

Social Security doesn't need a cent in its asset reserves to continue making payouts to eligible beneficiaries. That's because two of its three sources of funding are recurring: the 12.4% payroll tax on earned income and the taxation of benefits. As long as the American public keeps working, money will continue flowing into the program for disbursement.

To be clear, Social Security's survival isn't in doubt. However, it's not out of the question that across-the-board benefit cuts are needed by 2035 to offset the program's long-term unfunded obligations.

2. Paying benefits to undocumented immigrants has weakened the program

Another pervasive lie regarding the Social Security program is that its financial struggles can be tied to immigration -- more specifically, undocumented migrants receiving benefits. The thinking here is that if Social Security benefits weren't paid to undocumented immigrants, the program would be on better financial footing.

However, there are two things you absolutely need to know about this mode of thinking -- other than the fact that it's wrong.

First, Social Security relies on a healthy amount of legal net immigration every year to help offset the number of workers retiring. Migrants into the U.S. tend to be younger, which means they're likely to spend decades in the labor force contributing to Social Security via the payroll tax.

Second, undocumented workers aren't eligible for a traditional Social Security benefit or disability benefits. Since they don't have a Social Security number and have no legal pathway to citizenship, they can't earn any work credits that would make them eligible for benefits. Although undocumented migrants, such as those seeking asylum, may be approved for Supplemental Security Income (SSI), which is run by the Social Security Administration, SSI and traditional Social Security aren't funded the same way and shouldn't be conflated.

3. Congress should repay the money it stole, with interest

Of all the Social Security lies, the belief that Congress dipped its hand into the proverbial cookie jar, stole money to fund wars, and didn't pay it back is the most widespread. If you don't believe me, check out the comment section of any Social Security article online and you're bound to find a comment or three dozen about how lawmakers stole Social Security's money and didn't pay it back.

Truth be told, Social Security has a lot of issues, but thieving lawmakers isn't one.

Social Security's $2.9 trillion in asset reserves doesn't just sit in a vault collecting dust. Rather, the Social Security Administration is required by law to invest its net cash surpluses into special-issue bonds and, to a lesser extent, certificates of indebtedness (COI). These bonds and COIs all have varying yields and maturities that result in the federal government paying interest into the Social Security program.

To review, all of Social Security's $2.9 trillion in asset reserves are accounted for via bonds and COIs, and the federal government is paying interest into the program. If the federal government repaid these bonds and COIs, as some on social media have called for, it would actually reduce Social Security's annual income by about $80 billion (i.e., no interest income) and significantly weaken the program.

4. Social Security is a Ponzi scheme

A fourth lie you've probably heard about Social Security is that it's one giant Ponzi scheme. For those of you unfamiliar with the term, a Ponzi scheme is a fraudulent plan promoting high rates of return and minimal risk to drive investment. Persons running a Ponzi scheme will pay off early investors with the money being provided by newer investors, giving the impression of a successful venture with big returns.

In this instance, the correlation is that since younger working Americans are supporting retired workers, the program is one giant Ponzi scheme that'll eventually collapse. However, this is far from the truth.

Social Security isn't a for-profit investment vehicle that's promising pie-in-the-sky returns for current and future beneficiaries. Nor is it a program that invests in riskier or higher-growth assets like stocks or real estate. Rather, it's a program whose assets are invested in exceptionally safe special-issue bonds and COIs, with a core focus on the well-being of our nation's elderly who can no longer take care of themselves. It's not an investment, in a monetary sense, so much as a social investment in our aging workforce.

Furthermore, Social Security is a highly efficient program. Just $6.42 billion of the $1.06 trillion collected in 2019 was spent on running the program. This means 99.4% of all money collected will be disbursed as a benefit.

5. You get back what you pay into Social Security

A final Social Security lie you'll occasionally hear is the idea that what you've contributed to the program is yours to keep. For example, peruse the online comment section when a new Social Security proposal is unveiled on Capitol Hill and you're bound to see folks proclaiming that they paid into Social Security and that money is not lawmakers' to touch.

But here's the thing about Social Security... the money you put in isn't commensurate with what you'll receive in monthly or lifetime benefits.

According to an analysis by the Urban Institute in 2018, a low-income single man (low income is defined as $23,400 in 2018 dollars) who turns 65 in 2020 will have paid an estimated $135,000 in lifetime Social Security payroll tax but net $193,000 in lifetime benefits from the program. By comparison, a single man with maximum taxable earnings of $127,200 (again, in 2018 dollars) who'll turn 65 in 2020 will have paid $710,000 in lifetime Social Security benefits but can only expect to receive $512,000 in lifetime benefits. What you pay in isn't what you receive back from the program. 

Additionally, the dollar you pay into the program via payroll taxes isn't necessarily the dollar you get in return. Keep in mind that 11% of the $1.06 trillion Social Security generated last year came from the interest earned on its asset reserves and from the taxation of Social Security benefits.