Social Security is enormous and complex, paying out nearly $1.4 trillion to more than 67 million retirees, people with disabilities and their family members in 2023. It's wildly popular: According to a June 2023 AARP study, 96 percent of U.S. adults view Social Security as an important government program and 71 percent say its value grew amid the economic shocks of COVID-19 and high inflation. And it's critical to older Americans’ financial health, providing a majority of family income for 2 in 5 people ages 65 and older.
Given Social Security's importance, concerns about its current and future state are understandable and widespread. Some of those worries, and the many changes to the program in its eight-plus decades, have given rise to misconceptions about how it is funded and how it works. Here are the facts behind 10 of the most stubborn Social Security myths.
The 3 Biggest Myths About Social SecurityThe facts: As long as workers and employers pay payroll taxes, Social Security will not run out of money. It's a pay-as-you-go system: Revenue coming in from FICA (Federal Insurance Contributions Act) and SECA (Self-Employed Contributions Act) taxes largely cover the benefits going out.
Social Security does face funding challenges. For decades it collected more than it paid out, building a surplus that stood at $2.79 trillion at the end of 2023. But the system is starting to pay out more than it takes in, largely because the retiree population is growing faster than the working population, and living longer. Without changes in how Social Security is financed, the surplus is projected to run out in 2035, according to the latest annual report from the program's trustees.
Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine.
Even then, Social Security won't be broke. It will still collect tax revenue and pay benefits. But it will only bring in enough to pay 83 percent of scheduled benefits, according to the latest estimate. To avoid that outcome, Congress would need to take steps to shore up Social Security's finances, as it did in 1983, the last time the program nearly depleted its reserves. The steps then included raising the full retirement age (see Myth #2), increasing the payroll tax rate and introducing an income tax on benefits (see Myth #8).
The facts: Full retirement age, or FRA — the age when a worker qualifies to file for 100 percent of the benefit calculated from lifetime earnings history — is 66 and 6 months for people born in 1957, 66 and 8 months for those born in 1958 and will settle at 67 for those born in 1960 and after.
The 65 threshold is a longtime Social Security truth that became a myth. When Social Security was created in 1935, 65 was set as the age of eligibility. In later decades the minimum eligibility age was lowered to 62, when people could claim a reduced benefit, but 65 remained the standard for full retirement.
That changed with the 1983 overhaul, which raised the retirement age to reduce Social Security's costs. The increase is being phased in over time; 2002 was the last year in which people turning 65 could claim their full benefit.
The facts: Since 1975, Social Security law has mandated that benefit amounts be adjusted annually to keep pace with inflation. But there is no requirement that this cost-of-living adjustment (COLA) produce a yearly increase.
The COLA is tied to a federal index of prices for select consumer goods and services called the CPI-W. Benefits are adjusted annually based on changes in the CPI-W from the third quarter of one year to the third quarter of the next. In the third quarter of 2023, the index showed an 3.2 percent increase in prices, so benefits are 3.2 percent higher in 2024.
But if the index doesn't show a statistically measurable rise in prices — if there's effectively no inflation — then there's no adjustment to benefits. This has happened three times since the current formula was adopted, in 2010, 2011 and 2016. Whether or not it produces a benefit increase, this process is automatic; it does not involve the president or Congress. They would have to take separate action to change the COLA.
AARP Membership — $12 for your first year when you sign up for Automatic Renewal
Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine.
ARTICLE CONTINUES AFTER ADVERTISEMENT
The facts: A common complaint about Social Security is that members of Congress don't bother fixing the program because it doesn't cover them. Actually, it does. Members of Congress came under the Social Security umbrella in 1984, along with the rest of the federal workforce, as part of the sweeping changes to the program enacted the previous year.
Before that, senators and representatives did not pay into Social Security and were instead fully covered by a pension plan called the Civil Service Retirement System (CSRS). Those in office on Jan. 1, 1984, were allowed to remain in CSRS, but only in conjunction with Social Security. (If you're curious, one senator and four House members remain from those days.)
Health & Wellness Dental insurance plans for members and their families See more Health & Wellness offers >Those elected since are covered by Social Security as well as a pension program that replaced CSRS. Either way, members of Congress pay into Social Security just like most American workers.
The facts: The two trust funds that pay out Social Security benefits — one for retirees and their survivors, the other for people with disabilities — have never been part of the federal government's general fund. Social Security is a separate, self-funded program. The federal government does, however, borrow from Social Security.
Here's how: Social Security's tax revenue is, by law, invested in special U.S. Treasury securities. As with all Treasury bonds, the federal government can spend the proceeds on a variety of programs. But as with all bondholders, Treasury has to pay the money back, with interest. Social Security redeems the securities to pay benefits.
This borrowing fuels the notion that the government is raiding or even stealing from Social Security and leaving it with nothing but IOUs. But the government has always made full repayment, and the interest increases Social Security's assets, to the tune of $66.9 billion in 2023.
The facts: Some have blamed problems with Social Security's financial health on undocumented immigrants draining the system's resources. It's a popular complaint, but a false one. Noncitizens who live and work in the U.S. legally can qualify for Social Security under the same terms as native-born and naturalized Americans, but undocumented people are not allowed to claim benefits.
There is evidence that undocumented workers actually improve Social Security's bottom line. Some do obtain Social Security numbers under false pretenses, and payroll taxes are withheld from their wages even though they are not eligible to later collect benefits. A report by Social Security actuaries said that undocumented immigrants made a net contribution of around $12 billion to the program in 2010 and that their earnings would likely continue to “benefit the financial status” of Social Security.
The facts: The government does not stow your payroll tax contributions in a personal account for you, to be paid out with interest when you retire. Your benefit is based on how much money you earned over your working life, not on how much you paid into the system. As noted above, those contributions fund benefits for current retirees (and their survivors, and people with disabilities). When you retire, those still working will cover your benefits, and so on.
Over their lifetimes, most people get more from Social Security and Medicare (which is also partially funded by payroll tax contributions) than they pay in, according to analyses by the Urban Institute, a nonpartisan think tank. Still, you might think of Social Security less like saving for retirement — there are other vehicles for that — and more like an earned benefit the government promises to pay so you have at least some income in your later years.
Emphasis on “some": Contrary to another common misperception, Social Security is not meant to replace your entire work income. On average, it provides about 40 percent of a beneficiary's preretirement earnings. The formula for calculating benefits is weighted so that they replace a larger percentage of income for lower-wage workers and a lower percentage for upper-income earners.
