Social Security Mythology


The 2022 Social Security Fund Trustees’ Report is out, and here’s the latest on Trust Fund solvency:

The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, will be able to pay scheduled benefits on a timely basis until 2034, one year later than reported last year. The fund’s reserves will deplete at that time, and continuing tax income will be sufficient to pay 77 percent of scheduled benefits.

This is a regular feature of the annual report, and it has both current and future benefit recipients concerned—and rightly so.

However, if you read some headlines about it, you might think Social Security is going away in 2034. Take the title of an article that appeared on the AARP website earlier this year: “How Much Longer Will Social Security be Around?”

In many cases, the headlines and articles cite imminent insolvency but fail to mention until much later in the article the caveat that tax revenues should be sufficient to pay three-quarters of scheduled benefits. (To be fair, the AARP article cited that in their first paragraph. But still, the headline smacks of, “Got you to click, didn’t I?”.)

Social Security is a vital program providing millions of Americans with financial support. It keeps many retirees above the poverty line. And, as the trustees’ report highlights each year, there are some very valid reasons to be concerned about its long-term viability.

But sensationalized coverage, and political articles and speeches, which play off retirees’ fears, create confusion and doubt. As a result, many myths surround the Trust Fund and other aspects of the program. These myths come from misleading information, resulting in misunderstandings about how the program works, who are eligible for benefits, if they’ll ever receive them, and how much they’ll receive.

Those things can cause people to make unwise benefit-claiming decisions and to hold inaccurate benefit expectations.

In this article, I discuss some of the most common Social Security myths that confuse people and cause many to be very cynical about the future viability of the Social Security system and concerned about their retirement financial stability.

And as you’ll see, there are real problems as well. But they’re fixable if Congress is willing to act.

Myth #1: Social Security benefits are guaranteed

According to many (especially politicians), the federal government guarantees Social Security benefits. They say that the Social Security program is a mandatory retirement, disability, and survivor benefits program, and the government guarantees that it will pay out benefits to eligible individuals who have paid into the system.

So, is it guaranteed? Well, yes and no.

In other articles, I’ve often called it a “guaranteed lifetime inflation-adjusted income annuity.” I wrote that because it acts like one, not because it truly is. (I guess you could accuse me of perpetuating this myth as well. However, the Trust Fund does function a little like one in that it’s a pool of assets funded with payroll tax receipts that pay out benefits, but it’s not run the same way as a corporate pension fund or an insurance company-sponsored annuity.)

When you pay into Social Security, you’re not contributing to a deferred income annuity that grows tax-free until you annuitize it and start receiving guaranteed lifetime inflation-adjusted income from your principal balance when you retire.

Nor is it a government-sponsored retirement savings account, like an IRA or 401(k). Instead of contributing to an account, you contribute to the program through payroll taxes (either FICA or SECA). Those contributions are placed in the Social Security Trust Fund, which holds the surplus payroll taxes and invests the funds in special Treasury bonds backed by the U.S. government’s full faith and credit.

The Trust Fund is used to pay benefits to current retirees (and their survivors and people with disabilities). When you retire, those still working and paying taxes will cover your benefits, and so on. (For that reason, some call it a “Ponzi scheme.”) Benefits are based on lifetime earnings, not how much you paid into the system—you have no “account balance” to draw from.

This would seem to suggest that benefits are “guaranteed,” at least so long as the Trust Fund remains solvent, and the government continues to collect payroll taxes. That’s true; the current law mandates that those benefits are paid, but the law is not a hard, fast “guarantee.”

According to the Cato Institute (and many others agree with them), Social Security benefits are not legally guaranteed:

They are not legally guaranteed because workers have no contractual or property rights to any benefits. In two landmark cases, Flemming v. Nestor and Helvering v. Davis, the U.S. Supreme Court ruled that Social Security taxes are not contributions or savings but taxes and that Social Security benefits are simply a government spending program, no different than farm price supports. Congress and the president may change, reduce, or even eliminate benefits.

In other words, benefits are paid based on fund availability, the will of the U.S. Government, and the decisions of politicians. They can raise the eligibility ages and reduce benefits if they want to. So, in that sense, benefits are neither legally (contractually) nor politically (legislatively) guaranteed. The government only has an obligation to pay based on funds availability.

Perhaps that’s the reason a bill has been introduced in Congress (and it’s not the first time), “To guarantee the right of individuals to receive Social Security benefits under title II of the Social Security Act in full with an accurate annual cost-of-living adjustment” (H.R. 7652).

Benefits are not guaranteed economically either because the government is projected to have a deficit due to unfunded liabilities in about ten years (see next myth). This means it will have more liabilities than it can pay. If nothing changes, Congress will have to reduce benefits.

Myth #2: Social Security will stop paying benefits when the Trust Fund is depleted in 2034

While it’s true that Social Security is facing funding challenges, it’s not accurate to say that the program will cease and no longer pay benefits in 2034. What’s happening is that the program is slowly becoming ”insolvent” (unable to fully fund anticipated future liabilities), which isn’t the same as not being able to meet any future liabilities.

The program is becoming insolvent mainly due to demographic changes: the retiree population growing faster than the working population, and people are living longer. As that happens, benefit payouts increase faster than incoming tax receipts, which requires more and more benefits to be paid from Trust Fund reserves.

Stipulating that the Social Security Trust Fund will likely be depleted by 2034 unless Congress intervenes doesn’t mean that the program will stop paying benefits. As stated in the trustees’ report, Social Security will still be able to pay out approximately 77% of benefits from ongoing payroll tax receipts even after the Trust Fund is depleted.

Still, that would hit many beneficiaries very hard, so something needs to be done soon. But that’s different from not receiving any benefits at all.

In addition to ongoing payroll tax receipts, we must remember that the government doesn’t manage its budget like normal people do (obviously). They can literally create money out of thin air (in the form of a Treasury bond), so they could close the solvency gap that way. Is that the right thing to do? I think not, but they could.

Also, government budgets are “fungible,” meaning they can simply move money from one budget category to another to make the Social Security system whole. Again, is that the wisest course? Probably not—they’ll just have to borrow more money to true-up the budget they take it from.

On the bright side (if there is one), there are many proposals for reforming the program to ensure its long-term sustainability. Congress will surely need to take steps to shore up Social Security’s finances, as it did in 1983 when the program nearly depleted its reserves. The actions taken then included raising the full retirement age, increasing the payroll tax rate, and introducing an income tax on benefits.

Whether Congress will act on any of these again remains to be seen.

Myth #3: Congress uses Social Security funds for other purposes

The government is often accused of either taking money from the trust fund and spending it or borrowing from it and leaving the trust with only IOUs. As with the other myths, there is some truth here, but this isn’t totally accurate.

Social Security is a separate program, self-funded through payroll taxes. However, because there has historically been a surplus held in the Trust Fund, the federal government borrows from them, which is different from stealing, which is not unique to the Social Security program.

Social Security’s tax revenue must be invested in special U.S. Treasury securities by law. The federal government can then use the proceeds of the sale of those securities for various programs. However, the Treasury has to pay them back with interest. And Social Security sells securities and uses the return of principal to pay benefits.

This borrowing does not mean the government raids or steals from Social Security. The government has always paid them back in total, with whatever interest they earned, which increases the Trust Fund’s assets and income.

That said, the proceeds from the sale of Treasury bonds to the trust funds can be spent on anything the government spends money on, which, unfortunately, is how deficit spending is financed: debt. And this is what many people (and I would say rightfully) object to. But this is how it’s always been done since the Trust Fund was created in 1939. It isn’t some new “scam” to come in the back door and steal the pie from the kitchen. The government uses the proceeds to finance the debt, but the trust fund has never been put into its general fund; it’s separate.

So, yes, the trusts are a form of accounting for tax revenue. In this case, payroll tax revenue. The same is true for Medicare. And yes, the trust holds only special Treasury bonds. Just IOUs? In a way, yes, but in the same way that pension funds, countries, and individuals have IOUs from the federal government in the form of bonds, etc.

When the trust bought the Treasury bonds, the proceeds were spent on anything the government spends money on—just like any bonds the government sells to any entity, person, or country. As said, that’s how deficit spending is financed.

Is this a good way to fund a government? Well, I’ll leave that to you to decide.

Myth #4: Social Security benefits increase every year for inflation

Cost of Living Adjustment (COLA) is an increase in Social Security benefits paid to beneficiaries to account for the rising cost of living. The adjustment is based on the Consumer Price Index (CPI) for Urban Wage Earners and Clerical Workers (CPI-W), which measures the average price change for goods and services purchased by urban workers.

The COLA adjustment is calculated based on the percentage increase in the CPI-W from the previous year’s third quarter to the current year’s third quarter. If the CPI-W increases, then Social Security benefits will increase by the same percentage. There will be no COLA adjustment if the CPI-W does not increase or decrease. Therefore, there isn’t necessarily an increase due to inflation every year.

Social Security COLA adjustments are an important component of the program that helps to ensure that beneficiaries can keep up with the rising cost of living. While recent adjustments have been relatively small, the 5.9% increase for 2022 (based on 2021 inflation) was a big one and a big help for millions of Americans who rely on Social Security for most of their retirement income.

As inflation continued to rise in 2022, the index showed an 8.7% increase in prices, so benefits are 8.7% higher this year, 2023—another really large increase. But if the index doesn’t show a statistically measurable price rise, Social Security will not increase benefits in 2024. (It looks to be in the 2% range, but too soon to tell.)

Zero increases have only happened three times since the current COLA formula was adopted: 2010, 2011, and 2016. This is an automatic process, and it may or may not produce an increase in benefits. There is no governmental legislative action involved.

Myth #6: Social Security benefits are permanently reduced if you keep working

There is only partially true. Social Security does have an “earnings limit” or “earnings test” that can temporarily reduce benefits for working people. But it isn’t permanent.

This only applies to those who claim benefits before their full retirement age (FRA), perhaps at 62 and continue working.

In this case, Social Security withholds (and that’s the keyword: withholds) some of your benefits if your income from work is above a maximum amount. That income cap is adjusted yearly as you reach full retirement age.

In 2023, benefits are reduced by 50 percent on income over $21,240 if you won’t reach FRA this year. If you do, the income cap will be higher, and the formula will change to reduce benefits by about a third instead of half.

Then, once you reach FRA, there is no earnings limit and no benefit reduction, regardless of your income. Furthermore, Social Security adjusts your benefit so that, over time, you recoup the money they withheld (you don’t get it back all at once). In that way, the reductions aren’t “permanent.”

It’s important to remember that although you will no longer have a benefits earnings test if you continue to work, up to 85% of your benefits may be taxable based on how much income you earn.

Myth #7: Social Security Benefits will cover most of your retirement expenses

Many wrongly assume that Social Security will cover most of their retirement expenses. Because it’s a “progressive” system, it does cover more of the pre-retirement income for lower earners than those with higher income. But for average and higher-income earners, the percentages are less, and in some cases, much less.

Still, Social Security is the largest source of income for many retirees, providing at least 50 percent of income for 4 in 10 retirees and at least 90 percent for 1 in 7. According to studies by the U.S. Census Bureau and the SSA, most low-income older Americans have little to no pension income. And as we also know, many have not saved much either.

The average Social Security retirement benefit in February 2023 was $1,782 monthly or about $21,384 annually. Social Security benefits replace about 37 percent of past earnings for someone who worked all their adult life at average earnings and retires at age 65 in 2022. Even if you add in spousal benefits of 50 percent, the total is only $32,076, which will hardly be a livable income for most retired couples.

Medicare’s Supplementary Medical Insurance (Part B) premiums are deducted from most retirees’ Social Security checks, which can take a bite out of their income even as age-related healthcare costs continue to rise.

Most retiree households in the bottom third of the income distribution received no pension income. According to the SSA study, those households lived on less than $20,000 in 2015, and about half lived on $50,000 or less.

Myth busting

As we’ve seen, there are some very legitimate concerns about Social Security (and Medicare, for that matter). However, three are also a lot of misunderstandings, and sometimes things are misconstrued for questionable motivations.

In this article, I’ve attempted to dispel some of the myths while not suggesting that everything is just fine—it’s not. We must be vigilant and work to influence Congress to take appropriate action instead of the partisan demagoguery we often see. We should also be grateful for the common grace of the Social Security program and how it helps so many:

The Lord is good to all, and his mercy is over all that he has made. (Psalm 145:9, ESV)


👋 Hi, I’m Chris Cagle, the founder of Retirement Stewardship, a blog that focuses on the various aspects of retirement from a Christian stewardship perspective (1 Peter 4:10).

I write as a retiree who is dealing with the things I write about. I base most of the articles on my research and experience applying it to my situation and how it might apply to yours.

If you’re new here, check out the site introduction for an overview. You can also learn more about me.


My Books

Redeeming Retirement: A Practical Guide to Catch Up (2021)
The Minister’s Retirement (2020)
Reimagine Retirement: Planning and Living for the Glory of God (2019)