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Social Security: Fears vs. Facts

What Social Security critics keep getting wrong

En español | 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.

See also: Your top 25 Social Security questions answered.

Illustration of man contemplating a large Social Security card

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 2033. 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. Read more articles by Liz Weston.

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