One myth that I continually see perpetuated in Social media is that Congress stole money from the fund and spent it on their own programs. The message incites fear in people because they think they will have no money to retire on when their time comes.
There are several misconceptions that lead people to believe that this really happened, but to understand this, you need to understand how our Social Security system work.
The Social Security act of 1935 created the Social Security Administration and first began paying retirement benefits in 1940. The system has been marketed as insurance in the past and the perception was that the government was holding onto your money until you were at an age to start receiving it back. The truth is that the system was designed as a dollar-in Dollar-out system that pays benefits to today’s retirees from money collected from today’s taxpayers.
All Social Security withholding funds left over after paying the recipients are by law invested in non-marketable securities issued and guaranteed by the “full faith and credit” of the federal government, Treasury Bonds. The Bonds yield 3.7% interest and last year added over 3 billion dollars to the Social Security Trust Fund. Unlike regular Treasury bonds that are time bound, these can be redeemed at any time to meet the needs of the Social Security recipients.
“Why Treasury Bonds”,
Some of the criticism of this system of investing revolves around the question of “Why Treasury Bonds”, why not the Stock Market or some other investment vehicle. The main reason revolves around the fact that the Federal Government is not supposed to invest in private businesses. Another good reason is that The Federal Government has never failed to pay on our Treasury bonds, and they are historically one of the safest investments in the world.
But they spent the money!!!
Yes, Congress does spend the money invested in the US Government by the Social Security Administration just as Companies spend the money raised in stock offerings, banks spend the money invested in CDs and savings and I spent the money on a car when I took out my Auto loan.
But there is a huge difference between congress raiding the Social Security Trust Fund and spending the money or me robbing the bank to raise money to buy a car. We both entered into an investment agreement to grow our money by allowing another to use it, that is how our entire economy works, so it boggles my mine sometimes on how some people have a hard time seeing how what the Social Security Administration does with excess money as a smart investment.
The Social Security Administration has a remarkably low overhead for a government agency, their Administrative costs are around 1% of what they collect from US taxpayers.
Why is this myth perpetuated?
The simple answer is that there is no better way to control people than to scare them. 92 million Americans are over the age of 55 and they are also the largest voting demographic by percentage of people who reliably vote. Telling them that they will starve on the street and be a burden to their families in their old age unless they vote for you works very well for those in power.
How do we stop this fear?
Ironically, the information is readily available, a simple google search yields clear and concise information from reputable sources that back up the truth. But it is easier to scare people than it is to educate people and it is easy to blindly hit the forward button when you see a scary message than it is to verify the accuracy of the message. In the end, we are all responsible for what we post in Social Media and if you forward false, misleading and inaccurate messages, you have become part of the problem and are a tool of those in power to help keep them in power.
So fear not, your Social Security checks will keep coming, our withholding may increase in order to fund the aging population, but it is still a dollar-in Dollar-out system that will survive to supplement your expenses when you are old.
Financial Statement, US Social Security Administration https://www.ssa.gov/finance/2016/Financial%20Statements.pdf
Administration Expenses, US Social Security Administration
US Population Demographic Statistics