Wednesday, October 26, 2011
Three Myths about Social Security--#2
I posted a Blog some time ago. I think that it is time to re-post it because
it is election time again and false statements and down right lies are given
as fact to get elected as a Senator to congress or a Representative to the
House of Representatives.
I found the following information somewhere on line and decided that it
was worth copying.
I've been writing about Social Security for nearly two decades.
But even I still have trouble wrapping my brain around some of the system's
complexities — from how benefits are calculated to how the trust fund works.
So it's not surprising that myths about Social Security persist,
often fed by the program's critics. With the debate about Social Security's
future once again heating up, these three myths need to be put to rest —
so we can focus on the real issues.
Social security myths abound. — Illustration by Peter and Maria Hoey
Myth #1: By the time I retire, Social Security will be broke.
If you believe this, you are not alone. More and more Americans have
become convinced that the Social Security system won't be there when
they need it. In an AARP survey released last year, only 35 percent of
adults said they were very or somewhat confident about
Social Security's future.
It's true that Social Security's finances need work, because over the long
term there will not be enough money to fully cover promised benefits.
But radical changes aren't needed. In 2010 a number of different proposals
were put forward that, taken in combination, would put the program back
on firm financial ground for the future, including changes such as raising
the amount of wages subject to the payroll tax (now capped at $106,800)
and benefit changes based on longer life expectancy.
Next: More myths: Are the trust fund assets worthless? >>
Myth #2: The Social Security trust fund assets are worthless.
Any surplus payroll taxes not used for current benefits are used to purchase
special-issue, interest-paying Treasury bonds. In other words, the surplus in
the Social Security trust fund has been loaned to the federal government for
its general use — the reserve of $2.6 trillion is not a heap of cash sitting in
a vault. These bonds are backed by the full faith and credit of the federal
government, just as they are for other Treasury bondholders. However, Treasury
will soon need to pay back these bonds. This will put pressure on the federal
budget, according to Social Security's board of trustees. Even without any
changes, Social Security can continue paying full benefits through 2037.
After that, the revenue from payroll taxes will still cover
about 75 percent of promised benefits.
Myth #3: I could invest better on my own.
Maybe you could, and maybe you couldn't. But the point of Social Security
isn't to maximize the return on the payroll taxes you've contributed. Social
Security is designed to be the one guaranteed part of your retirement income
that can't be outlived or lost in the stock market. It's a secure base of income
throughout your working life and retirement. And for many, it's a lifeline. Social
Security provides the majority of income for at least half of Americans
over age 65; it is 90 percent or more of income for 43 percent of singles and
22 percent of married couples. You can, and should, invest in a retirement
fund like a 401(k) or an individual retirement account. Maybe you'll enjoy
strong returns and avoid the market turmoil we have seen during the past
decade. If not, you'll still have Social Security to fall back on.
As AARP The Magazine's personal finance columnist, Liz Weston offers
advice on everything from car loans to home sales.