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Social Security is enormous and complex, paying out more than $102 billion a month to some 66 million retirees, people with disabilities and their family members. It's wildly popular: A May 2021 AARP survey found that 85 percent of older adults strongly oppose cutting benefits to help reduce the federal budget deficit. And it's critical to older Americans’ financial health, providing a majority of family income for around half of people age 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.
Myth #1: Social Security is going broke
The 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 $2.85 trillion at the end of 2021. 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.
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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 80 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).
Myth #2: The Social Security retirement age is 65
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 4 months for people born in 1956 and 66 and 6 months for those born in 1957. Over the next few years it will increase by two months at a time, settling 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.
Myth #3: The annual COLA is guaranteed
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 2022, the index showed an 8.7 percent increase in prices, so benefits will be 8.7 percent higher in 2023.
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.