5 Huge Myths About Social Security

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5 Huge Myths About Social Security
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By Ilan M oscovitz | M ore Articles October 15, 2012 | Comments (188)
Social Security has been providing Americans with old age, disability, and widow and orphan insurance for as many as 77 years. But like so many of today's crucial financial topics, it's also shrouded in myth. Here are five big ones. Myth No. 1: Social Security is going bankrupt The biggest misunderstanding out there relates to Social Security's financial challenges. (A Google search for "Social Security bankruptcy" turned up 50 million hits.) But the fact is that Social Security isn't going bankrupt, nor is bankruptcy really possible as the system is currently set up. Here's the source of the confusion: Historically, Social Security has collected more than it paid out. The extra money built up in a trust fund that collects interest. But due to demographic and economic changes (more on that in a minute), it's expected that insurance payments will begin to exceed income in 2021. Around 2033, the fund will run out. But even then, the revenue Social Security collects each year would still be enough to pay out about three-quarters of scheduled benefits as far as the eye can see.
Source: Social Security Administration.
In short, to say Social Security is going bankrupt, you have to ignore its revenues. But by such a weird standard -ignoring revenues and seeing how long it would take expenses to drive tangible net assets to zero -- the average member of the Dow would go "bankrupt" in just under three months. (Fascinating bonus trivia: At nine months, Microsoft would survive the longest, while United Technologies wouldn't last two hours, and eight Dow blue chips DuPont, Boeing, IBM, Pfizer, Hewlett-Packard, Procter & Gamble, AT&T, and Verizon -- would already be bankrupt. Again, that's because ignoring revenues doesn't make sense.) Of course, doing nothing would mean that Social Security won't be able to meet its full obligations two decades from now. But it's not going bankrupt. Myth No. 2: Meeting Social Security's future shortfall is really hard We only need to come up with about 0.9% of GDP in order to make Social Security's revenues match up with its expenses for the next 75 years. To put that into perspective, 0.9% is close to the cost of unemployment insurance, the high-end Bush tax cuts, or one-fifth of the Defense budget. That's not insignificant, but it's hardly apocalyptic. There are two basic ways to close that gap. We could increase payroll tax revenue by raising the cap (currently any personal income beyond $110,100 is exempt from Social Security payroll taxes) or raising the rate. Or we could cut benefits by lowering payments and/or raising the retirement age. Other strategies could include things like allowing more
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immigration to reinforce the population of working-age citizens or paying for it out of the general fund, but they aren't discussed as often. Generally speaking, polls tend to show more support for revenue increases than benefit cuts, though there are plenty of different options. To get a sense of what they are, here are a bunch of different tweaks the Congressional Budget Office examined that could help us reach that 0.9% threshold:
Source: Congressional Budget Office.
Myth No. 3: Social Security's financial challenges are due to rising life expectancies This one's only partially true. For the past few decades, there have been about three workers for every Social Security beneficiary. It's estimated that ratio will fall to around two by 2035. Since Social Security's revenue is generated by workers, a rising proportion of beneficiaries to workers puts a strain on the system. The idea that it makes sense to cut benefits by raising the retirement age naturally arises out of the fact that life expectancies are rising. However, three things are important to keep in mind. First, a declining proportion of workers to beneficiaries doesn't automatically mean Social Security can't support its beneficiaries because workers become more productive over time. Since 1980, productivity per worker has increased by 78%. Second, although it's true that life expectancies at birth have risen quite a bit over recent decades, the more important metric -- life expectancies for 65-year-olds have only risen by about two years since 1980. What's more, the same seniors who don't have sources of income besides Social Security haven't seen the same gains in life expectancy and often work in physically demanding jobs that are harder to perform at 70. Finally, there are other, perhaps more significant reasons for the projected shortfall, including declining birth rates and rising income inequality over the past several decades. Myth No. 4: Social Security adds to the deficit Social Security can't add to the deficit, because it has its own funding source (Social Security payroll taxes) and isn't allowed to spend any money it doesn't have. Much of the confusion comes from the fact that under federal accounting practices Social Security is represented in the consolidated federal budget, as well as from the fact that Social Security's trust fund, like many insurance funds, invests in Treasury bonds. (Bonds are debt investments.) The exception has been the payroll tax holiday, which lowered payroll taxes starting in January 2011 in order to stimulate the economy. During that period, the federal government made up the lost revenue to Social Security that would have been collected. The holiday is expected to end next year. Myth No. 5: Social Security only provides retirement benefits Social Security isn't a retirement savings plan. It's actually a universal insurance program that helps protect workers, retirees, and their families from life's unknowns. Most Social Security benefits do support retirees via old-age insurance, but some also provide insurance in case people become disabled, widowed, or orphaned.
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Source: Social Security Administration.
Keep in mind... Social Security makes up the majority of income for two-thirds of all retirees. And it will continue to be around unless we decide to eliminate it. At the same time, Social Security was never meant to cover our full income needs during retirement. The average retirement benefit last month was $1,235 -- an important chunk of income -- but probably not enough by itself to live off of comfortably. Retirement experts generally estimate that maintaining a preretirement lifestyle requires about 70% of preretirement income. So, if you're still in your working years and have paid off any high-interest debt, make sure that you're setting aside and investing some money each month. When it comes time to retire, you'll thank yourself. For more in our retirement series, check out: 17 Frightening Facts About Retirement Savings in America Are 401(k) Plans a Failed Experiment? How to Fix the Retirement Savings Crisis Ilan Moscovitz doesn't own shares of any company mentioned. The Motley Fool owns shares of International Business Machines and Microsoft. Motley Fool newsletter services have recommended buying shares of Procter & Gamble. Motley Fool newsletter services have recommended creating a synthetic long position in International Business Machines. Motley Fool newsletter services have recommended creating a synthetic covered call position in Microsoft. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Comments from our Foolish Readers
On October 15, 2012, at 2:46 PM, m dk0611 w rote:
Correct me if I'm wrong, but isn't 100% of the Social Security trust fund invested in US Treasury securities? Although it might not be GAAP, won't "cashing in" those securities increase the general deficit as they would have to be covered by addtional borrowing? With respect to life expectancy, I think you're looking at the wrong time frame. Where the life expectancy issue affected Social Security's solvency came when our grandparents and great grandparents, who paid in something $30. per year for a chunk of their working lives, not only outlived the longivity projections when the system was started but got COLA increases starting in 1972 that they (nor anyone else) didn't pay for. That being said, you are correct in your statement that even if unchanged Social Security would never pay
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our zero to future beneficiaries.

On October 15, 2012, at 4:02 PM, StopPrintinMoney w rote:
so the author of this nonsense suggests we stop worrying about putting our money into the ponzi scheme? Oh, ok. I feel much better now!
On October 15, 2012, at 6:19 PM, CBD1960 w rote:
I tried printing this article - twice - no luck. All that prints is the chart. Any suggestions?
On October 15, 2012, at 6:31 PM, xetn w rote:
This article is a myth. All social security taxes go to the general fund and is spent with an IOU going the the Social Security trust fund. When the cash is required to make Social Security payments it is borrowed and funded by yet again another tax (on income). According to Boston University economist Laurence Kotlikoff, the present value gap is $222 TRILLION and increasing at the rate of $11 trillion each year. http://teapartyeconomist.com/2012/08/10/11-trillion-increase...
On October 15, 2012, at 6:36 PM, AgAuMoney w rote:
Copy and paste the article into MS Word or OpenOffice/LibreOffice Writer or probably even into WordPad and print from there.
On October 15, 2012, at 6:36 PM, neam akri w rote:
I talked to a real economist about this. I called it a pyramid scheme. He was nicer and called it a pay-asyou-go system. Before 2010 there were 4 workers per retiree (4:1). Sometime after 2010 when Baby Boomers retire the ratio will change to three workers per retiree (3:1). The result is that to keep the same pay-as-you-go system the three workers must contribute 33% more to make up for the missing worker, or else the retirees must accept 25% less due to lost revenue. Or some combination of the two. All talk about "fixing" Social Security must revolve around these two points. I state that SSA suffers two grave issues (1) funds are not invested in the private sector where they can earn more, and (2) political control. To illustrate the political problem consider this; congress LOWERED ssa contributions this tax year. If you understood the previous paragraph you know why this is so bad. Congress thinks of ssa as their personal piggy bank. The obvious permanent solution is to privatize Social Security. It has already been done successfully years ago in Chili. All we have to do is copy their pattern, no reinventing needed! The person who did this is Jose Panera. See en-dot-wikipedia-dot-org/wiki/Jos_Piera or www-dot-cato-dot-org/people/jose-pinera.
On October 15, 2012, at 6:48 PM, OMGREALLY w rote:
i appreciate that mf has a democrat leaning but please try to be a bit more balanced for those of us independents out there. last time i looked, bankruptcy occurs when an organizations assets exceed liabilities. on going cash flow is only a factor in how much the creditors (the public) ultimately recovers from the BANKRUPT SYSTEM. good points on methods for bring ss back into economic sound footing but there is no myth about it: rome is burning and all the efforts to sugar coat the problems only increases the pain that is being pushed down the road. we need action on so many problems now before we can no longer afford the costs of dealing with all ot them in the future!!!!!! frankly i am tired of the left leaning articles from mf. you can do better!!!
On October 15, 2012, at 7:49 PM, neelvk w rote:
I love it. If the government invests in rock-solid treasury bonds, it is called self-dealing. If the government
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were to invest in the private sector - the same people would be screaming about takeover of the private sector by the government. Are there flaws in the SSA? Heck yes! For one, things have not been adjusted for life expectancy increases. Second, only wages are taxed by SSA (so trust fund babies can be shielded) and then on top, there is a cutoff mark. Why is the cutoff mark there? So that people making millions in wages don't get dinged. But it is truly laughable that the SSA funds should be invested in the private sector. Why? So that we can all collectively ride the roller-coaster?
On October 15, 2012, at 7:54 PM, neocolonialist w rote:
neamakri brought up one of the most important points this article misses, and that is the baby boomer problem. That changes the math dramatically. Also, with unemployment rate going up (and full time employment going down hard), revenues have to be coming down as well no? I wonder how well that is factored in above? I am new here, but surprised to see such rosy articles coming out on an investment website about things that are really not rosy from an investment perspective. I would suspect most serious investors here could do a LOT better with their money than what the government is going to do, no? When I look at my retirement calculations I leave social security completely out, actually ~120% out because I know I will be taxed to make up the shortfalls.
On October 15, 2012, at 8:55 PM, Tom ohaw k52 w rote:
If I were counting on SS to finance my retirement, I would be very worried that 25-year old folks are going to be fed up paying into a system to finance the lifestyles of people who had a lifetime to save but chose not to.
On October 15, 2012, at 9:19 PM, rd80 w rote:
"Myth No. 4: Social Security adds to the deficit" Not a myth since the trust fund has no value. I'll explain. Current system - 'trust fund' When expenditures exceed revenue, SS admin pulls some amount of the special SS bonds, turns them in to Treasury for cash. Treasury, probably with congressional action, must either take the funds from other appropriations, issue new bonds or default on SS claim. Now, suppose we didn't have a trust fund. When expenditures exceed revenue, SS admin would go to congress and request additional funding. Options are take the funds from other appropriations, borrow the money or let SS default on some of its obligations. Exact same outcome with or without a trust fund. Since the outcome is identical, the so called trust fund adds no value to the system. And the most likely outcome is to borrow the money since congress won't cut other spending to fund it and can't risk ticking off the most reliable voting block there is. Therefore, Social Security WILL add to the deficit. And, since "During that period, the federal government made up the lost revenue to Social Security that would have been collected.", it already has added to the deficit. I enjoyed the column.
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On October 15, 2012, at 9:22 PM, TheSoulofaShark w rote:
What's the difference between going bankrupt and not being able to pay everyone in full?
On October 15, 2012, at 9:24 PM, rd80 w rote:
@neelvk "Why is the cutoff mark there?" Because there's also a cutoff on the benefit side.
On October 15, 2012, at 9:50 PM, FoolZim w rote:
Let's try a little exercise here. Everyone get a piece of paper, and write yourself an IOU for $1 billion. How many new billionaires have we made today? None. Because an IOU is both an asset to the holder and a liability to the issuer. When the holder and issuer are the same entity, the net effect is zero. The same is true for government bonds held as 'assets' by a government agency. To consider the bonds held by the trust fund as assets, we have to ignore the inconvenient fact that they are also liabilities to the government. In short, the 'trust fund' in broke right now.
On October 16, 2012, at 9:54 AM, TMFMurph w rote:
" First, a declining proportion of workers to beneficiaries doesn't automatically mean Social Security can't support its beneficiaries because workers become more productive over time. Since 1980, productivity per worker has increased by 78%" And precisely how does that result in more money into the Social Security system?
On October 16, 2012, at 10:58 AM, TMFDiogenes w rote:
" Correct me if I'm wrong, but isn't 100% of the Social Security trust fund invested in US Treasury securities? Although it might not be GAAP, won't "cashing in" those securities increase the general deficit as they would have to be covered by addtional borrowing? " It's the same as when anyone sells a treasury bills -- the holder changes, but the total amount doesn't increase.
On October 16, 2012, at 12:34 PM, TMFDiogenes w rote:
"last time i looked, bankruptcy occurs when an organizations assets exceed liabilities." Not exactly -- as the article stated 8 out of the 30 Dow companies actually have negative net tangible assets. Bankruptcy occurs when an organization is unable to pay its bills. In SS's case, the bills by law decline if the trust fund were to run out so that they don't exceed revenue.
"neamakri brought up one of the most important points this article misses, and that is the baby boomer problem." See myth #3 above "Also, with unemployment rate going up (and full time employment going down hard), revenues have to be coming down as well no? I wonder how well that is factored in above?" The numbers are the most recent figures, which the SSA actuaries adjusted for revenue lost due to the recession. "I am new here, but surprised to see such rosy articles coming out on an investment website about things
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that are really not rosy from an investment perspective." Welcome, and thanks for posting! The goal wasn't to paint a rosy picture of retirement -- see another article in the series by John: http://www.fool.com/retirement/general/2012/10/15/17-frighte... Nor does the article paint a rosy picture of Social Security -- benefits would be reduced considerably in a couple of decades without changes to raise revenue or reduce benefits. "I would suspect most serious investors here could do a LOT better with their money than what the government is going to do, no?" Agreed, that's why serious investors probably shouldn't rely on Social Security for all their retirement income needs, as noted at the end. Keep in mind too, SS isn't a retirement investing program, it's an insurance program. The goal is to insure, not to generate the highest possible returns.
" First, a declining proportion of workers to beneficiaries doesn't automatically mean Social Security can't support its beneficiaries because workers become more productive over time. Since 1980, productivity per worker has increased by 78% And precisely how does that result in more money into the Social Security system?" You end up with more Social Security payroll tax revenue per worker.
On October 16, 2012, at 12:57 PM, TMFMorgan w rote:
^ Precisely!
On October 16, 2012, at 1:21 PM, sm artm uffin w rote:
You mentioned "rising income inequality" as an explanation between the shortfall between revenues and expenses. Can you please elaborate on that? What is the logic behind this?
On October 16, 2012, at 1:55 PM, m attsoundw orld w rote:
"You end up with more Social Security payroll tax revenue per worker." How do you figure? Just because each worker is more productive doesn't mean that everyone is being paid for being productive. Since the 1980's I believe purchasing power has generally stayed level, if not slipped in certain areas (housing). Standard of living has risen due to technology increase, but outside of inflation, how are you generating more revenue? Theoretically, if we have 100 million workers 70% more efficient than they were 30 years ago, what market incentive is there to pay any one of them more than they were valued 30 years ago, inflation aside?
On October 16, 2012, at 2:13 PM, TMFCrocoStim py w rote:
@smartmuffin "You mentioned "rising income inequality" as an explanation between the shortfall between revenues and expenses. Can you please elaborate on that? What is the logic behind this?" My take on that would be that a larger growth of income in the upper income brackets doesn't contribute anything to SS since it falls above the maximum income cap, so the increase in SS funds from an increasing GDP are not materializing in the same way as if the income growth had occurred more evenly across the income spectrum.
On October 16, 2012, at 2:22 PM, TMFCrocoStim py w rote:
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One question that has always bothered me about the idea of privatizing SS is that of market impact. Currently, the SS trust fund is around $2.7T or so, and the estimated value of the US equities market is maybe $15T. So, we're looking at the SS trust fund being on the order of 18% of the total value of the market. Annually, SS brings in around $0.8T, or about 5% of the market. Suddenly allowing this amount of money to filter into the markets, even if it where only the annual SS taxes and not the trust fund itself, seems like it would cause a massive distortion of the marketplace fare in excess of anything that QEXX has ever done, and it would do so on an ad-infinitum basis. So, though we as investors see how to place our money wisely for our own future, doesn't this open up a serious systemic issue that would likely result in another equities bubble?
^ I've though about that too. Some of the money would go into corporate bonds and the like, but you can't just suddenly dump $2.7 trillion into any market and not have deep distortions.
On October 16, 2012, at 2:47 PM, m claugph w rote:
Given the saving and investment track records of many, the idea of privatizing SS is just scary. One of the mantras hammered ad nauseum on this site is how most professionals can't even match (nevermind beat) the market. With how far the market fell a few years ago, can you imagine all the panicking elderly pulling their money out at the low points and ending up penniless under a highway overpass? It's called 'social security' not 'nationwide risk' for a reason.
""You end up with more Social Security payroll tax revenue per worker." Just because each worker is more productive doesn't mean that everyone is being paid for being productive. Since the 1980's I believe purchasing power has generally stayed level, if not slipped in certain areas (housing)." Good question! Taxes are paid on a nominal basis; nominal (non-inflation adjusted) wages have increased since 1980 (even though real, inflation adjusted wages haven't increased much since 1980.) Yeah, you're right though that social security would have more revenue if wage growth since the 1980s would have kept up with its previous pace. So productivity per worker helps measure our economy's ability to support social security with a smaller workforce taxed at the same rate, and nominal payroll is the actual revenue base.
"@smartmuffin "You mentioned "rising income inequality" as an explanation between the shortfall between revenues and expenses. Can you please elaborate on that? What is the logic behind this?" My take on that would be that a larger growth of income in the upper income brackets doesn't contribute anything to SS since it falls above the maximum income cap, so the increase in SS funds from an increasing GDP are not materializing in the same way as if the income growth had occurred more evenly across the income spectrum." ^ Yeah, there wasn't enough time in the article to get into it, but that's the idea.
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"Given the saving and investment track records of many, the idea of privatizing SS is just scary." How many individuals do you know that are $16 trillion in debt and whose annual cash flow is negative $1 trillion+? It's all relative. Nobody is saying the average individual American is a great saver and investor. Just that they're a HELL of a lot better than the collective entity of the state.
On October 16, 2012, at 3:21 PM, debitthat w rote:
Re Myth #4 -- When the fed issues that new bond to cover the IOU that is being cashed in, are they increasing the federal debt or just rolling over the existing debt and thus keeping the debt the same? The fed will still have accruing interest payments to make, but it seems that if SS could balance the front end income and outgo (or even make it positive), then in theory they could pay down some of the amount they have to roll over and thus reduce the unfunded liability. Unlikely, but possible?
On October 16, 2012, at 3:22 PM, CluckChicken w rote:
My concern with a private SS system would be what do you do with the people that lose all of their money in it? As a population we have poor investment knowledge which would probably lead to lots of broke people. I find it difficult to believe that this type of issue could be ignored. Also with such poor investment knowledge how big do you think the scams would be? That much money with so many poorly informed people equals easy targets.
If SS is a Ponzi scheme, then every insurance company in the world is a Ponzi scheme. If using one person's premiums to pay another person's claims freaks you out, you should keep your distance from Berkshire Hathaway, too.
On October 16, 2012, at 4:33 PM, m dk0611 w rote:
Depends on what kind of insurance you're talking about. Most forms of insurance do not guarantee a payout, whereas once you have your 40 quarters (as the vast majority of SS contributors will) you are guaranteed one. For those that do guarantee a payout there is a long term reliance on investment returns. I wonder if anyone has done a long term analysis (and we're talking about 40-50 years) of what the return would have been if an average workers FICA withholding had been contributed to an S&P 500 mutual fund. Obviously a nuber of different starting dates would have to be considered. In additon, you would have to consider whether the employer's share should go into the existing system and whether there would be a required, long term transition to debt investments after the age of 50 or 55.
"whereas once you have your 40 quarters (as the vast majority of SS contributors will) you are guaranteed one. " Not true. If you die before you turn 65 (and never become disabled, a survivor, etc.) and have no dependents, there will be no payout of any kind. Your money will have been taken from you and you will have received absolutely nothing in return. I've always thought it to be somewhat amusing that people supposedly need retirement insurance (insurance that pays off if you live too long) AND life insurance (insurance that pays off if you die). Isn't that sort of like owning and shorting the same company?
^ One is for you, the other for your heirs.

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Right, but my point stands. Rather than buying insurance for two opposite events, someone could simply save their money for a rainy day, and it could accomplish either end without involving government breaucrats OR corporate fat-cats. If you live "too long" your savings can provide for you, and if you die "too soon" then your savings can be passed on to your heirs. When you keep and save your own money, it manages to be both a defined benefit AND a defined contribution. Imagine that.
On October 17, 2012, at 10:30 AM, Darw ood11 w rote:
Wow, Morgan. I'll give you points for willingly stepping into the room with the tiger and then closing the door behind you!
On October 17, 2012, at 11:06 AM, kspes w rote:
"I would suspect most serious investors here could do a LOT better with their money than what the government is going to do, no?" I don't think SS was created for serious investors here. I would bet that most people could not/would not do better If, given the money paid on their behalf.
On October 17, 2012, at 11:13 AM, DividendsBoom w rote:
Morgan and stimpycocoapuffs, the argument to privatize is being distorted by you, why I don't know. The framework for privatizing centers around giving younger workers the opportunity to invest using individual accounts. Investable assets would include stocks, corporate bonds, precious metals, us bonds, and foreign government bonds. A much bigger market than what you indicate. Also, the entire yearly revenue wouldn't be going into the market every year, as revenues are paid out every year also.
On October 17, 2012, at 11:23 AM, AirForceFool w rote:
<What's the difference between going bankrupt and not being able to pay everyone in full?> Tell that to the retirees of Prichard Alabama... not saying that getting 80% of what you got before is a good deal... just that it's a far sight better than getting NO check... Let's face it folks... change is coming... we can embrace it and figure out the best way to move forward, or do nothing and make it that much worse down the road. Totally dig the chart showing all the options and how they each affect the funds necessary to fill the projected gap. Chris
On October 17, 2012, at 11:36 AM, AirForceFool w rote:
kspes... Totally agree... five years ago, I would have given up all past funds paid if they would let me invest my current amount into stocks... but "Social Security makes up the majority of income for two-thirds of all retirees." which means that the average American is so lousy at saving and investing that the majority must depend on SS to keep from starving... this sucks... I for one am not factoring in SS into my retirement needs... I don't think SS is going away (1 in 6 Americans collect in some form)... so when I do collet my check (possibly at a higher age, or a reduced amount) I'll be able to use it to help the less fortunate... Chris
On October 17, 2012, at 2:04 PM, FoolSolo w rote:
Bravo to the author!! Thank you for the level-headed analysis. Don't be offended by the above stream of comments and emotionally charged feedback, its par for the course on such a polarizing topic. There is so
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much hype, misinformation and outright lies (for political reasons) shrouding this topic that it is absolutely refreshing to get a ray of facts for a change. Those who advocate for privatizing SS should really consider the state of our union. Unlike most of the TMF members, very few Americans have the smarts, the means or even the basic understanding of how to balance their pocketbook let alone plan and manage their retirement plan. The majority don't have a household budget at all, and millions can't even comprehend the compound interest charges on their credit cards. Consider also the millions that depend on food stamps, those that live paycheck to paycheck, and the millions who don't even have bank accounts or access to the Internet. Consider how many millions of Americans don't have even elementary level reading, writing and arithmetic skills. Do you really expect such folks to comprehend retirement investing/planning, and to make such crucial investment decisions with their retirement funds? Even many of my own family and close friends, with college educations and serious incomes don't have the first clue when it comes to investing and financial planning. Many of them never get beyond auto-pilot 401K deductions in overhyped and high-fee mutual funds, and never even take the time to think about a retirement strategy, or even read a mutual fund disclosure document. Let's get serious about this problem and let's not pretend that anything that involves government is doomed to failure. From what I have seen and experienced, most Americans are better off with inept government bureaucracy than swimming the predatory Wall Street banksters.
On October 17, 2012, at 4:25 PM, irvingfisher w rote:
I really like these kind of fact based articles. Thanks very much. Here's what the gvt did in canada: 1- Put in some real money. The Canada Pension Plan is not an actuarial notation in the gvt's books. It has actually money in an actual trust that can't be raided or underfunfed by the gvt. 2- Real money means real investments; not just treasuries. the CPP is run exactly like a pension fund by pension fund managers. It buys anything including companies all over the world. It's like a sovereign wealth fund. 3- Here's the kicker: Over the last 10 years or so, the contribution rate has been increasing by about 1%point per year, from about 3% of salary (capped at about 40K) to 12% now. Once again, boomers make out like bandits and Gen X and Y get the shaft.
On October 17, 2012, at 4:39 PM, kbtoys99 w rote:
This article seems slanted to me. We may not YET be bankrupt but we are surely on the road. if we don't fess up to the real structural problems in SS then we will never solve them. Means testing, Reducing Benefits, Raising the retirement Age and other changes are the only solution.
On October 17, 2012, at 4:59 PM, alfa17 w rote:
You don't have to follow the Chile example, 2 Texas counties (Galveston and I think Beauford) opted out of SS in 1985 for county employees in favor of a private system. Their plan included life and disability insurance. Last article I read on this, the employeesand plan were doing fine.
On October 17, 2012, at 5:45 PM, Chontichajim w rote:
Seems you can never overcome people's prejudice when it comes to Social Security. All the ponzi schemes and government stealing makes for good science fiction, but without any economic truth. I especially enjoyed the definition of bankrupt (assumed he mixed up assets and liabilities) which would define about half of corporations as bankrupt including almost every company in the financial sector.
On October 17, 2012, at 6:05 PM, venturen w rote:
No mention that Social Security uses interest from Government bonds? And that interest is now
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dramatically lower....pushing up the date of insolvency. Was this put out by the Obama balanced budget committee?l
On October 17, 2012, at 7:06 PM, ahochau w rote:
An IOU to yourself is not an asset. If so, we could all instantly make ourselves billionaires. The federal govt has borrowed from the fund because govt can't pay its bills and promised to pay the fund back with interest. At the same time the govt continues spending more more than it takes in. It's kinda like loaning money to a junkie and expecting to get it back.
On October 17, 2012, at 7:14 PM, 102971 w rote:
I find it interesting that one of the earliest comments accused TMF of being left leaning. It is pretty obvious that from most of the comments that the majority of MTF subscribers are right leaning. Not a criticism, since we are all trying to make money out of investing, just an observation.
On October 17, 2012, at 7:30 PM, DocPhoton w rote:
Author is so wrong so many ways. Myth 1: When payments exceed income, that's bankrupt. You can argue definitions. Don't. It's bankrupt. Myth 2: It IS hard. The solution is simple, sure. Getting Congress to implement it is hard. Much more fun to show granny pushed off a cliff than to implement simple fixes. Author is wrong again. Myth 3: If it's true it's not a myth. Seriously. Just write an article making your points without resorting to "myth busting" and "fact checking". Myth 4: You gave an example refuting your own claim. It can add to the deficit because it already has. Myth 5: Score! You got this one right.
On October 17, 2012, at 7:35 PM, GRTTT7 w rote:
"Then there is the brother of the President, Jose Piera, who is today revered in many economic circles for his application of Chicago School-inspired principles, yet whose connections to Pinochet run even deeper. Jose Piera was a minister in the Pinochet cabinet from 1978 to 1981, first as the Secretary of Labour and Social Security and then as Secretary of Mining (much of Chiles economy is dependent on the vast copper and nitrate mines in the north of the country). During his period in office, Jose Piera introduced legislation that saw large-scale privatisation of the pensions system and healthcare, and the repeal of laws introduced after the coup that had effectively banned trade unions, following the threat of a boycott of Chile from North American trade unions, something that would have had severe implications for the Chilean economy." Above excerpt from: Pieras administration haunted by ghosts of Pinochet era...by Nick MacWilliam.. Google up the entire article for a real eye opener on this guy Some may see him(Pinera) as a savior..I see him as a smug manipulative neofascist.
On October 17, 2012, at 7:50 PM, eldetorre w rote:
The people calling social security system a ponzi scheme make me laugh. If you as a private investor invested in government debt, would you expect to get repaid/earn interest? Why is it any different for SS tax payers? To further aggravate my irritation, when the trust fund was originally raided the government essentially replaced cash with so called IOUS at face value. In other words they replaced it with the maturity value of the debt instead of the free market equivalent value if purchased by a retail investor.
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The solution to SS is very simple: 1-It should be converted to a DEFINED CONTRIBUTION SYSTEM the exact equivalent of retail investors purchasing Gov't debt. Gov't debt purchased by SS taxes should not be a second class citizen to retail purchasers or bank or foreign government purchasers. Just like other debt holders SS recipients receive just what they paid into it plus interest, nothing more except in cases of poverty 2-The cap should be raised, but only on the employee, not employer portion of the contribution.
On October 17, 2012, at 8:00 PM, eldetorre w rote:
Oh as for the counties that opted out of social security are you kidding me? For all you know they are investing in Gov't debt, plus charging service fee. They guarantee 3-4%, but on what basis? Sounds like they just pulled a number that sounded conservative out of the air. The fact is until most of those people actually start retiring you don't know how sound the plan is. If there were a large number of retirees 4-5 years ago, how would they fare?
On October 17, 2012, at 8:19 PM, atking w rote:
I love the Fool. But this loses credibility. Those IOUs are going to come due soon.
On October 17, 2012, at 8:29 PM, BHOm ustGO w rote:
Have you ever seen this viewpoing? I am 73, drawing Soc. Sec. since age 67+. Started at approx. $17,500 per year, less medicare insurance, and this year I am receiving $21,480. So...I have collected approx. $112,480 in SocSec benefits since retiring. I'm in pretty good health so let's say I live 10 more years to age 83. I will receive a minimum of $215,000 more in the next ten years, plus the $112,000 I have already collected for a total of $327,480. I know how much I have paid into SocSec according to SocSec statements they send to you. If you were to take the annual interest rate being paid for each year you were paying in, and used your cumulative sums that you paid in each year, adjusting for the different interest rates each year, and computed how much your "nest egg" would grow as you add to your annual contribution, plus interest at the going rate, there is no way, even with the compounding of interest and my contributions up until retirement that I am "entitled" to receive this much money. I, and all other SocSec recipients who live for a reasonable time past the start of their retirement are receiving much more than we should be getting. That is why the Soc Sec is corrupt and a "ponzi" scheme. And now, there are not enough poor souls working who can support the system with all the baby boomers retiring. FDR never intended for SocSec to allow people to live on it. You were supposed to have your own money set aside for retirement and not spend it all foolishly, expecting the government and SocSec to take care of you in retirement.
On October 17, 2012, at 8:38 PM, rashw orth w rote:
Moreover on pt #5, if there are 2/3 of retirees that SS is majority of income, that still allows that over 50% could be effectively relying on something else besides SS. Yet tha gov. took over 12% of their lifetime earnings (both sides of employer/employee shares) and the worker has no control of their funds. They rely on the future whims of lawmakers and financial journalists to decide their money's fate. But they sawthewriting on the wall and the reality and saved for themselves as a true fool would. Let's get our myths and realities in a clearer picture.
On October 17, 2012, at 8:39 PM, PeakOilBill w rote:
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The Federal government's Social Security program has one advantage no private business retirement plan, or stock investment can ever have. The government can print an infinite amount of money which you have NO CHOICE but to use inside the United States. That money may be worth less and buy less, but it will NEVER be worth zero. The United States government can never go 'bankrupt' because it can print all the money it needs. It has the power to create cash from nothing, without borrowing it from anywhere, should it chose to do so. Private businesses can go bankrupt and their retirement plans can go broke, and the stock market can crash. Let a war cut off oil from the Middle East for 6 months and you will witness a lot of both. The idea that Social Security is a ponzi scheme is totally absurd. Of course, some very wealthy people, especially associated with Wall Street, would love to destroy the Social Security system, because it would force more money into their pockets as people are forced to invest more into private investments in order to provide some retirement income. That is where the recent bashing of the SS system is coming from. As evidenced by what happened that led to 2008, their lying and greed knows no bounds. And they are richer and more powerful than ever as evidenced by the fact that Citigroup alone got $45,000,000,000 of the taxpayer's money after they nearly destroyed the global economy with their reckless financial instruments.That is peanuts compared to what they dream of getting their hands on if they can destroy Social Security.
On October 17, 2012, at 8:53 PM, rashw orth w rote:
These five points don't add up to much. Sounds like they were not written by a true fool but by a politician. 1. Failing to be able to meet financial obligations is the definition of the road to bankruptcy. 2. Solve the shortfall by raising taxes, great idea. Better cut benefits to those who have already paid in fully. Raise the age, good luck collecting. 3. If life expectancy is up only 2 years , then raise eligibility by 5 years, Ouch! 4. SS doesn't add to the deficit. But out of the blue stop paying SS taxes and the deficit is put to the Gen. Fund. No Act of Congress, just whim. How easy. Try to sort that out after a few more such episodes.
On October 17, 2012, at 9:46 PM, DonSchreiber w rote:
My experience is that any time there is a pile of money someone will come along with a superficially plausible reason why they should take the money. Social Security in its present form is a pile of money that Wall Street cant touch. To bankers, that money is like a naked woman and they just want to get in bed with her. If you doubt the principle that when there is a pile of money someone will come along with a reason why they should take the money, consider what the states are having to do now in regulating long term care insurance. The insurance companies have been collecting the premiums for years and now that it is time to pay they are trying to avoid their contractual obligations. To me, the present situation with long term care insurance is beginning to resemble the way health insurers have behaved prior to the enactment of Obama Care.
On October 17, 2012, at 10:14 PM, m ikew 12345 w rote:
You would think that with the surge of baby boomers just finishing up the highest-earning years of their lives, tax revenues would be at an all-time high and the govt would be enjoying massive surpluses. Instead, our government is in terrible financial shape, and things will only get worse as those high-earners stop earning and start collecting benefits. We're in big trouble.
On October 17, 2012, at 11:01 PM, FoolSolo w rote:
The deficits and so called SS bankruptcy are charade invented by the elite. SS is not the problem. Take a look at the US budget; you should note that the US spends more on defense than virtually all other
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countries combined, almost 5 times what #2 - China spends, and 10 times what #3 - Russia spends. Yet the defense budget is a sacred cow no politician dares touch. Frankly, I would prefer if the fiscal cliff actually went into effect - maybe then people will realize what a scam our defense budget really is.
On October 17, 2012, at 11:35 PM, lm rohde w rote:
This is a well written article but there is such widespread distrust of SS and government finance that it is a challenge to explain. So I will try to clarify the matter of adding to the public debt. As all should know, by law the Trust Fund was created to allow for an accumulation of revenues to ease the impact when the annual receipts were less than the income. It was mandated that the fund was to be invested in a special class of treasury bonds, only redeemable by the treasury, and with interest paid at the time of redemption. Presently, the treasury owes the fund about $6.3 trillion, which is a great deal more than is owed to all foreign countries combined. The debt to the Trust Fund is included in the national debt just like a privately owned long term bond or money borrowed from China. This does not make it a contributor to the national debt as it is not the cause of the debt. If you personally buy a treasury bond the government owes you the value of the bond and that amount will be counted in the national debt. But you didn't cause the debt. How the government gets the funds to redeem your bond is irrelevant. If there is a budget surplus that year, it can be paid with cash. If not, the government will have to sell more bonds, which is how most of the debt is rolled over. For those who think privatizing is the answer, make a list of the pitfalls, risks, bookeeping, investment costs etc. and ask, "If we are willing to take more risk then turn large amounts of the Fund over to private investment managers (such as those who run Harvard's endowment) and hopefully increase the Funds income".
On October 17, 2012, at 11:54 PM, jfrankh57 w rote:
Seems that you forgot to include the fact that their is no "Lockbox" since Congress saw fit to include it in the general revenue fund for the past so many years...and because of that little fact, it would not run out of money, but in the real world, anything that takes in less money than goes out ultimately goes bankrupt!
On October 18, 2012, at 12:01 AM, jfrankh57 w rote:
PeakOilBill : The only reason the money will not got to zero value is the government controlled lands that "belong to us" (yea, right!) have $trillions in assests on and below them. If it weren't for that little matter, our money would be zero value around the world!
On October 18, 2012, at 12:10 AM, TerryHogan w rote:
@irvingfisher I think you need to check your numbers. The contribution rate for the Canadian Pension Plan is only 4.95% of your salary (quite a bit different from 12%), with a mzximum payment of $2,306.70 (Which means anyone making over $47,000 pays less than 4.95%) As far as SS is concerned, if you raise the age of eligibility, that is a de facto bankruptcy for anyone who dies between age 65 and the new age, because instead of the payments they're expecting now, they get none. I'd prefer that people were more panicked about this rather than less, because then the problem might actually get dealt with. Quit calming people down and start fear-mongering!
On October 18, 2012, at 12:19 AM, steveelcpo w rote:
I have a few problems with this article, aside from the political leaning. One, relying on a government that allows itself to accumulate $16 trilion in debt is sorta like relying on your spendthrift sibling that has 3 mortgages on their house and all the credit cards maxed out to support you during retirement. Two, the shortfall will be made up with either higher taxes or reduced benefits. The chart, when you boil it all down, essentially gives combinations of those two options. Three, what is the opportunity cost of relying on a government funded system as opposed to either a completely private system or some type of hybrid to
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cover disability and survivors benefits for younger workers who die without having contributed for a standard working life? In other words, instead of the government holding debt to fund a retirement system that doesn't give you enough to live off of anyway, why not have a private system (or at least offer the option to those who are astute enough to manage their own investments) that allows people to accumulate wealth outside of a government system? Four, Social Security is an unfunded liability on the books of the US government (and future taxpayers) that has got to be in the hundreds of trillions of $$$.
On October 18, 2012, at 12:42 AM, Arneschonb w rote:
The tea party types never let the truth affect their anti American attitudes. Yes, the govt is us. Going bankrupt means you restructure or close down, in SS case you change benefits and pay out an amount equal to income, nothing like going out of business. SS covers a minimal standard of living that assures that massive numbers of elderly and people with disabilities are not made homeless and destitute. Consider this: if we increase poverty people wil spend less and businesses will suffer, too. " just save more" bull the minimum wage and other wages without unions are so low millions of folks need fod stamps to feed families. That includes military members who do the actual fighting. How does that person save for retirement when all income is needed for rent and food? Get real, are you that out of touch?
On October 18, 2012, at 1:11 AM, lbruch w rote:
hmmm I wonder if those who dislike social security, or who accuse it of being a ponzi scheme, also dislike life insurance, health insurance, property insurance, auto insurance, etc., or think that they are also ponzi schemes.
On October 18, 2012, at 1:58 AM, neocolonialist w rote:
"Two, the shortfall will be made up with either higher taxes or reduced benefits. " This is simply not true. The shortfall will be made up with BOTH higher taxes AND reduced benefits. And if history is any indicator that trend will continue until it is just a tax. In all seriousness though, if someone making $250,000 is "rich", and should be made to pay more of their "fair share" as the leadership keeps touting, it worries me greatly for the future. While I am not in that rich category, that category will drop as well as money gets tighter. And I have no doubt that some in the govt have the same idea as some of the geniuses posting on here that want to remove the caps. I had always dreamed of "making it" someday, but I am seriously doubting that will be an option for very much longer. Even if I have a decent ride through retirement, no way my kids will. I am not confident this ship can be turned either. If I had a dollar for everytime my Dad said "nobody in this life owes you a damn thing and you always remember that" I would be in that rich category. Unfortunately, that mindset seems to be something out of the past. Everyone wants security and fairness now instead or opportunity and freedom.
On October 18, 2012, at 2:48 AM, carefulinvestor w rote:
Maybe it is indirectly addressed through one of the methods in the article, but another (and possibly most likely) remedy the goverment will take to address the shortfall is to raise the general income tax rate on deferred compensation plan (401k, IRA, etc) withdraws. Hence the people that did the "right thing" and saved for their retirement in these plans get screwed again. You'll pay for the shortfalls and short-sightedness of others. Pay the taxes on income now, save tax free (i.e. income taxes already paid) money in a taxable or Roth account.
On October 18, 2012, at 3:06 AM, kahunacfa w rote:
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Good article, for the most part. Social Security is just FINE except that: 1. Because of current United States demographic trends in about 2033 the Social Security Trust Funds will start to experience greater cash out-flows than cash in-flows. That "problem" too can be fixed, sort-of by increasing the Social Security wage tax rate, and expanding the Social Security wage earned income base to the first five hundred thousand dollars of wage income. The out-flow "problem" can be fixed by not allowing Retirement payments to be made to any US Citizen who earns more than $250,000 per year. The easiest "Fix" is also available by simply using the "normal" Full Social Security Retirement age to reach age seventy. Many, many of the United States' Retired Senior Citizens are still well able to work productively until age seventy or greater. The funding of the Trust Fund can also be improved if the Trust Funds are allowed to own stock in large FORTUNE 1000 United States Corporations. Many, many of these companies pay dividends whose yield greatly exceeds the yield on long-term U.S. Treasury securities. Also, the Trust Fund should actually purchase real, marketable U. S. Treasury securities rather than the "Funny-money," non-marketable paper they now receive. Kahuna, CFA Venture Capital General Partner 2012 - 2019 or 20
On October 18, 2012, at 4:46 AM, Noneleft01 w rote:
Social security is adding to the financial problems of the USA (and other developed countries), there is no way to skirt around it. It makes no difference how you like to apportion the liabilities and separate out trust funds etc. the bottom line is that money COULD instead be more productively allocated in a country which has the biggest debts in the history of this planet. It's about prioritising tax spending. It is still yet another tax funded burden being placed on the working citizen however you cut it. By the logic of this article, we can fix the entire sovereign debt problem just by putting the state's revenue into that trust fund and hey presto! problem solved. Maybe we can create a trust fund for bailing out banks run by incompetent crooks since that seems to be another big area of spending? Author please get real - NET SPENDING MUST BE CUT!!!!! It makes no difference how you separate it out, because social security is not the only thing our government spends our money on.
Sorry to say this, because I like MF, but this article is just socialist propaganda.
On October 18, 2012, at 7:38 AM, w vow ell w rote:
This is a sad sad article and total nonsense! Social Security is a complete PONZI scheme that is a disgrace to America. This idiot says the shortfall doesn't effect the deficit. If the government has obligations of X dollars and is taking in less than X it is a deficit. The source is the same as all government expenditures. TAXES FROM PEOPLE. The Social Security surplus has been used by our lying cheating congressmen to balance the budget. The "great" Bill Clinton's surplus was only because of the Social Security Surplus. Social Security was created for RETIREMENT ONLY!! Again the criminals in congress have bought votes by making it for disability, and widow and orphans. It is a PONZI scheme that needs to be phased out!! Motley Fool should be using this as an opportunity to
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show people that if they could keep their Social Security and invest it on their own they would be far better off. Articles like this are so disgusting to me, and to have people that actually think this is a good program.
Hopefully the non-thinking liberals can understand this. A 26 year old makes $20,000 with NO raises until they are 62. In other words 37 years of an income of $20,000 each year. If they kept their own social security and the company match. If they got 5% growth per year. They would have in their account at age 62 --- $256,102.91. This would be THEIR MONEY. They could do what they wanted with it!!! If they died they could pass it on to their heirs. WOW, wakeup wakeup realize government is a burden not an assest to all of us!!!
One other thing about this article. There never has been a TRUST FUND for Social Security. It does not draw interest as the government keeps the money and uses it for all government programs. Social Security is a farce, PONZI scheme, and it's a shame that we don't have enough citizens to realize this. It is simple math and experience of what are socialized government does with OUR MONEY. One other thing. All taxes are paid by citizens. When corporations are taxed, that tax expenditure is pasted on to customers of that corporation. PEOPLE and only PEOPLE pay taxes.
Hey, how about this! If Social Security was on the Stock Market would any of you invest a dime into it? How about the author of this socialist propaganda, would you invest money in this scheme?
On October 18, 2012, at 8:28 AM, TMFMorgan w rote:
People use the phrase "Ponzi scheme" to describe anything in the financial world they're unhappy with. The worst case scenario for SS is that future beneficiaries receive 75% of what they're currently promised. That's if no changes to the system are put in place, which is highly unlikely. We went through this same thing in the early 1980s. The standard opinion towards SS then was that it was a ponzi scheme destined to soon go bankrupt -- 1990 was the breaking point at which the system was said to go bust. Then Reagan and Tip Oneil tweaked payouts and taxes, and the world went on. SS can be made permanently sustainable with tweaks that most wouldn't even notice -- changing PIA factors to rise with inflation instead of earnings. It seems those most critical of the article won't even acknowledge this, and choose dogmatic gloom over facts.
On October 18, 2012, at 8:35 AM, CluckChicken w rote:
"choose dogmatic gloom over facts." Well why let those peasky facts ruin a good doom and gloom?
On October 18, 2012, at 8:51 AM, Rudder99 w rote:
Myth #1 should be that "SS is a benefit" or "there is a trust fund." According to the law passed in 1947 and the Supreme Court ruling in 1948, SS IS A TAX which is placed into the General Fund for Congress to do with as they see fit. Congress gets to decide- always- IF and WHAT we get paid when. Much like Obama-Care, SS is a TAX. There is NO OBLIGATION on Congress or the gov't to pay a nickel to anyone.
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Why are "facts" so hard to discern these days?

On October 18, 2012, at 8:54 AM, Sw am pBull w rote:
@Tomohawk 52: Bingo. Lefties: if Social Security is not meant to be a retirement program and it is to 'insure' against 'long-life' (an outcome which is highly probable by current age definitions), then WHY do so many seniors rely solely on Social Security for retirement? Who is to blame for their lack of savings?
On October 18, 2012, at 8:54 AM, sm acunalum w rote:
"There are two basic ways to close that gap. ... Other strategies could include things like allowing more immigration to reinforce the population of working-age citizens or paying for it out of the general fund, but they aren't discussed as often." So you want to bring more people into an economy that cannot support the people that are already here ...brilliant!
Rudder99 , Who has argued that payroll taxes aren't taxes?

On October 18, 2012, at 9:10 AM, BigDw ane w rote:
SS HAS borrowed to pay out! See: http://cnsnews.com/news/article/15-last-25-months-treasury-n... Now, I've paid in almost a quarter$million to the SS program. At a conservative rate of 4% I'd have all I'd want for retirement but now will pay "tax" on my taxed SS! It is a PONZI scheme. The stock market investors by accounts are 85% institutional investors with federal state and local municipalities providing a huge amount. That leaves only 15% private investors. Making SS a private institution would skew the market even more. A previous writer is correct. Do away with it. By the way, what happens to the SS paid in to the system of those who die without drawing (younger than retirement age) or without drawing out their amount they paid in? I've never seen figures on those statistics.
On October 18, 2012, at 10:04 AM, devoish w rote:
BigDwayne, I think you are mistaken. You say you have paid almost a quarter million into SSI. The taxable maximum in 2011 was $110,000 at 10.4% employer/employee combined for SSI. The taxable maximum in 1937 when the program started was $3000. At 10.4% the maximum you contributed in 1937 was $312.00, and the percentage was lower then. Had you paid the maximum every year you would have had to start before the inception of SSI to have contributed $250,000. The most you could have paid in at 10.4%, if you had started in 1937 is $216,200 and it is probably much less because the rate used to be much lower. had you begun paying at birth, before you began working you would be 75 years old today and you would have already taken out more than you had put in, plus had the pitifully low security of disability benefits. had you begun paying the maximum contribution in at age 20 you would be 95 years old and gotten far better than a 4% return on your investment of less than $216,200. Kahuna, or someone, please feel free to check my math and feel free to calculate the maximum
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contributions at the correct tax rates if you wish. I have to go to work. http://www.ssa.gov/policy/docs/policybriefs/pb2011-02.html Best wishes, Steven
^ Facts!
On October 18, 2012, at 10:20 AM, ginger2375 w rote:
I notice Moscovitz did not address the non myth of the massive abuse of the SS disability program, which has exploded recently. I sure all have seen the attorneys Binder & Binder commercials on TV. They have made a lucrative practice of promoting the abuse of the system. The system is broken; period.
On October 18, 2012, at 10:30 AM, vitom 999 w rote:
Yikes! Weird article--each point (except Point 5)could have been written under the headline "Truth No 1" "Truth No 2," etc. Most of the data referenced under each heading is actually relevant, but it takes very naive worldview to review that data and then say that the conclusion that there is a problem constitutes a myth. By the way, as the author no doubt intended, the label "myth" is particularly demeaning to people who actually care about this stuff. It is inevitable that corrections will need to be made to the SS system. But it is unlikely that those corrections, which will overwhelmingly be on the side of the payors, will be so painless that you can refer to them as tweaks.
On October 18, 2012, at 10:52 AM, KyleSanDiego w rote:
This seems like a political piece in a political season. I don't like it, nor will I waste my valuable time replying.
On October 18, 2012, at 11:00 AM, iam theschm itzer w rote:
So, your definition of bankruptcy means an entity has no revenues? Bankruptcy, to the rest of us means you have bills you can't pay, and won't be able to pay in the foreseeable future, without significant concessions from your debtors - a restructuring. Point 5 you make is eye-opening. When I think of our "rate of return" in SS, it completely ignores these facts. Thanks!
On October 18, 2012, at 11:05 AM, ziq w rote:
@rd80: So you're saying if SS has a shortfall and cashes some of its treasury bonds that's adding to the deficit? By the same logic, when I get around to cashing all of my treasury bonds (which are paying less than the rate of inflation, but that's another story) I'll be adding to the deficit. It's a strange piece of accounting, if lenders calling in their loans under the terms of the loans (collecting any interest or forfeiting any penalties as appropriate) adds to the deficit. Even if Congress is forced to find other lenders to meet its budget, how is that adding to the deficit? Borrowed money is borrowed money. The notion that SS is a Ponzi scheme is pure political hyperbole, taking advantage of the Madoff scandal current at the time it was first used. I don't think it's "left-leaning" to point that out. In case it's not obvious, there is a huge difference between paying old investors with money from new investors to give the illusion the investments have been profitable, and a pay-as-you-go system with an
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honest discussion of the fact that it's not structurally sustainable past 2033: transparency.
On October 18, 2012, at 12:52 PM, Rebud w rote:
The TRUTH is what you BELIEVE! LEAD, FOLLOW, or MOVE ON!

"By the way, as the author no doubt intended, the label "myth" is particularly demeaning to people who actually care about this stuff. It is inevitable that corrections will need to be made to the SS system." Not at all my intention; I care about this topic. Nor do I think corrections won't need to be made (see the discussion under myth #2 of possible corrections.) The goal was just to address some of the most common misconceptions about the program. If we're going to fix things, it helps to be working off of facts and numbers rather than rumor.
"So, your definition of bankruptcy means an entity has no revenues? Bankruptcy, to the rest of us means you have bills you can't pay, and won't be able to pay in the foreseeable future, without significant concessions from your debtors - a restructuring." When people say "Social Security is going bankrupt" what they're suggesting in everyday speech is that Social Security is going out of business. That's the mistake I was pushing back against, because the only way to reach that conclusion is to ignore the revenues Social Security collects.
On October 18, 2012, at 2:28 PM, LouisDous w rote:
Adding to the mythology... A. We could raise the cap on earnings. ah, we do this every year (3% this year, yet maximum benefits do not increase 3%). B. We could remove the earnings cap all together. ah, this, along with the current means testing of ss benefits (you know treating ss benefits as income subject to taxation, thanks to Bill Clinton and AARP), recategorizes SS all the way from the old definition of SSI (I = insurance) to a welfare program. Sorry Grandma, you're on the dole. Oh, and once you remove the cap, you can't do it incrementally anymore. I wonder if anyone might modify their behavior if the cap is removed. C. Privatizing ss is a risky republican scheme. Ah, allowing an individual the option (that means you don't have to do it), to have their own (that means they own it) account that they can invest in is risky, but just giving everyone (that means they have to do it) 32.2% of their employee contributions willy nilly with no requirements to invest them (how about buying lottery tickets) is not risky because obama proposed it (reduced employee share of ss from 6.2% to 4%). Thanks for reading.
On October 18, 2012, at 3:27 PM, FEP w rote:
Mr. M of MF; Pretty good article that needed to be writen. I thank you, and I'm sure lots of others think the same. Don't be too sad because some folks are wearing ideological blinkers (if not blindfolds). They are too busy grinding their axe to think about anything but saying NO. The CBO has the solutions, or tweaks, to the system. No system is going to work perfectly forever. Even our constitution has been tweaked a few times. Hang in their M, some of us are listening. (Some of us actually think about solutions instead throwing the baby out with the bathwater)
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Pressed Ham.
On October 18, 2012, at 4:07 PM, zgriner w rote:
A large number of glaring errors need to be corrected: -- "Historically, Social Security has collected more than it paid out." NOT TRUE. Social Security was designed as a transfer-payment system, ie. pay-as-you-go. The current generation of recipients got their money from teh current generation of workers. In 1983, I believe, Congress passed a law to create the Social Security surplus because they actuaries warned them that the baby boomers wouldn't have enough youngsters around to support them financially. -- "... it's expected that insurance payments will begin to exceed income in 2021" NEWSFLASH!! It already started and was widely reported. -- "There are two basic ways to close that gap. ... increase payroll tax revenue by raising the cap or raising the rate. Or we could cut benefits by lowering payments and/or raising the retirement age." There is nothing sacrosanct about the amount of money that people get. This is completely arbitrary and decided by the government, based on people's contributions. The problem is that everyone who is retired or retiring has structured their lives around these payments. This has to be done gradually. -- "a declining proportion of workers to beneficiaries doesn't automatically mean Social Security can't support its beneficiaries because workers become more productive over time." What does productivity have to do with anything?? Social Security is based on monies contributed. If workers aren't bring in the cash, you can't make the payments. -- "... other ... reasons for the ... shortfall, including declining birth rates and rising income inequality" What does income inequality have to do with it?? The bulk of the workers support the bulk of the retirees. Their pay is what should be driving payments. Income inequality is PC talk. -- "Social Security's trust fund, like many insurance funds, invests in Treasury bonds." There's a very big difference. Unlike insurance companies, Social Security can't sell its bonds to raise money. Instead, the Treasury must redeem the bonds and go to the market to pay for them. It makes complete sense to include this debt in the budget.
"-- "... it's expected that insurance payments will begin to exceed income in 2021" NEWSFLASH!! It already started and was widely reported." ^ Insurance payments recently began to exceed non-interest income, not total income. From the report linked to the article: Annual OASDI cost exceeded non-interest income in 2010 for the first time since 1983. The Trustees project that cost will continue to exceed non-interest income throughout the 75-year valuation period. Nevertheless, total trust fund income, including interest income, is more than is necessary to cover costs through 2020, so trust fund assets continue to grow. Beginning in 2021, cost exceeds total income and combined OASI and DI Trust Fund assets diminish until they become exhausted in 2033. After trust fund exhaustion, continuing income is sufficient to support expenditures at a
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level of 75 percent of program cost for the rest of 2033, declining to 73 percent for 2086.
"What does productivity have to do with anything?? Social Security is based on monies contributed. If workers aren't bring in the cash, you can't make the payments. -- "... other ... reasons for the ... shortfall, including declining birth rates and rising income inequality" What does income inequality have to do with it?? The bulk of the workers support the bulk of the retirees. Their pay is what should be driving payments. " ^ This is addressed earlier in the comments. Productivity measures the economy's ability to support social security on a per worker basis, explaining why it's possible to handle some of the demographic changes. Higher nominal wages over time mean more revenue into the system per worker. (Not to downplay the problem of real wages stagnating since 1980; that's an important but separate problem.)
"There's a very big difference. Unlike insurance companies, Social Security can't sell its bonds to raise money. Instead, the Treasury must redeem the bonds and go to the market to pay for them. It makes complete sense to include this debt in the budget." ^ I'm not so sure. If someone lends you $100, your net debt hasn't increased ($100 in cash + $100 in debt = $0 net debt.) Nor does debt increase when they redeem their $100. Really all that happens is that you've reduced your reliance on other lenders like CHINA, a country which we're always hearing supposedly has a debt gun to our collective heads and stuff, despite the fact that they only hold a fairly small percentage of our outstanding debt.
<<CHINA, a country which we're always hearing supposedly has a debt gun to our collective heads and stuff, despite the fact that they only hold a fairly small percentage of our outstanding debt.>> China's holdings of US debt have been declining for more than a year, too. But we're getting off topic here. http://www.treasury.gov/resource-center/data-chart-center/ti...
On October 18, 2012, at 8:56 PM, erkingso w rote:
Ilan Moscovitz' article, "5 Huge Myths About Social Security," is outstanding. It is clear, cogent and devoid of all the hype and misinformation that often accompanies public discussion about our Social Security system. Thank you, Eric Kingson Professor, Syracuse University Founding Co-director, Social Security Works Co-chair, Strengthen Social Security Campaign ( www.strengthensocialsecurity.org ).
On October 18, 2012, at 10:15 PM, NOTvuffett w rote:
Even assuming that the govt. t-bills will be honored, SS will have a 25% shortfall in the next few decades by any sober analysis. What are the goals of SS? In part, it is meant to be like insurance to take care of people in need. I am ok
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with that. The other goal is to serve as a sort of govt. sponsored pension program. It is truly scary that so few enter their elder years with almost no savings as has been reported lately in the news and on this site. They just count on SS to take care of them.
Oh, and I may say signing your posts "Eric Kingson Professor, Syracuse University Founding Co-director, Social Security Works Co-chair, Strengthen Social Security Campaign ( www.strengthensocialsecurity.org )." makes you sound like a big douche.
On October 19, 2012, at 1:11 AM, dgm ennie w rote:
It has often been estimated that by 2033, Social Security won't be able to pay out full scheduled benefits. Proposals for fixing the problem range from lifting the payroll tax cap, or raising rates on wage earners, or cutting benefits through payment reductions, or introducing ever-higher retirement ages. It should be noted that while average lifetimes have increased somewhat (with more folks living in retirement communities and nursing homes), the number of years when a person could actually be expected to stay employed fulltime (because his/her health has not declined) haven't significantly changed. Also, many corporations now look upon experienced employees in their '40s and '50s as "overqualified" -- a common euphemism for "too old." Therefore, how are well-seasoned, healthy citizens suppose to support themselves for the intervening 10-20 years when both decent jobs AND Social Security are not available to them? Higher retirement ages will only aggravate this situation.
By the logic of this article, we can fix the entire sovereign debt problem just by putting the state's revenue into a trust fund and hey presto! problem solved. Maybe we can create a trust fund for bailing out banks or auto companies run by incompetent crooks too, since that seems to be another big area of public spending? Back in the real world, it actually makes no difference how you apportion liabilities and separate out trust funds etc. because the bottom line is that money all comes from taxes on working people, and COULD instead be more productively allocated in a country which has the biggest debts in the history of this planet. The golden rule which socialists never understand is "money doesn't grow on trees". Someone has to earn it before it can be taken away and spent by the state. SS is still just another tax funded burden being placed on the working citizen however you cut it. Economics 101 should tell you that the state has no money of it's own, only what it takes from its citizens.
On October 19, 2012, at 9:04 AM, Resphigi w rote:
The biggest myth of them all is that the social security trust fund has a surplus. There isn't any surplus money in the trust fund. The government spent all of it and replaced it with IOU's. Those "IOU's" are shown as accounts receivable (assets). The government has borrowed money from itself! Try a stunt like that in the private sector and you'll wind up with an all expense paid visit to the Federal Hotel in Leavenworth, Kansas.
On October 19, 2012, at 11:24 AM, w ealthychef w rote:
Apparently anyone can write articles for Motley Fool. This is poorly researched work, What are the author's sources, credentials? I looked at his bio and they seem to just be some random blogger.
On October 19, 2012, at 11:25 AM, Viking1931 w rote:
A lot of interesting comments, but it is completely wrong to call it a "Ponzi Scheme." Ponzi schemes are
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black holes while Social Secuirty is completely transparent. You can get a report showing just how much you have put in by year and an exact report on what you'll get if you retire at 62 or a later age. Try to get that from your friendly neighborhood Ponzi scheme salesman. My vote for a road to solvency is more immigration. Lots more. The current non-latino population is not reproducing itself, so w/o immigration we will perish.
On October 19, 2012, at 11:26 AM, jcb1948 w rote:
Wow. So much of this is built upon the incorrect statement that "The extra money built up in a trust fund that collects interest." No. The extra money has been spent by Congress for the last, what, 40 years? Technically it was "borrowed," but we don't have the money to pay it back. Also, forget 2021. SS paid out more than it took in this year. Sorry, you fail.
On October 19, 2012, at 11:39 AM, MariaFolsom w rote:
Fortunately, many many Motley Fools are smarter than the author of this article. It doesn't take an accountant or economist to understand what bankruptcy means. Most hilarious is the suggestion that we simply take more money out of payrolls (taxpayers wages) so that, well . . . so that workers can pay THEMSELVES when they retire. This article was shamefully disappointing and unusual for MF.
On October 19, 2012, at 11:44 AM, eldetorre w rote:
I don't get it. Why do so many here think T-bills bought by taxpayers via SS taxes are less sacrosanct than T-bills bought by private investors banks? If we are considering reneging on our obligations, I'd suggest we start by reneging on banks that bought tbills with bailout funds!
On October 19, 2012, at 11:44 AM, dcrodw ell w rote:
The bulk of these comments, while interesting, bring a phrase into sharp focus: "Don't bother me with the facts...I have already made up my mind." And it seems from the comments, they seem to run along Partisan Party lines. Oh well...
On October 19, 2012, at 11:48 AM, logiet w rote:
It is true that Social Security may not go bankrupt in a chapter 7 sense, but it would have to undergo something like a chapter 11 to continue. With the exception of the trust fund (invested in Treasuries) that is being depleted, it functions the same way as a Ponzi scheme in the sense that current payouts are funded from current receipts (although they are supposed to be compulsory rather than depending on salesmanship). One possibility would be to delay full benefits to age 70. Increased taxes to support the current system would have a negative multiplier effect on the economy and would indeed increase the deficit by depressing receipts, investment, savings and innovation. The problem is real and cannot be solved by more taxes.
On October 19, 2012, at 11:50 AM, Euskara w rote:
Your article is grossly misleading. You refer to a Social Security Trust Fund and that FICA taxes are set aside and invested in Treasuries. Utterly false. There is no trust fund, Congress, since LBJ spends all the FICA money it collects and leaves an IOU in the "lock box". That, Sirs, is the classic definition of a Ponzi Scheme as the government is relying on the continuing inflow of new funds to pay out its commitments. When it was started by FDR there were 16 to 18 workers per beneficiary. Now the ration is less than 3 to 1 and in another decade that ratio will fall to 2 to 1. Do the math!! By then there will not be enough
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money generated by our total work force to pay out promised SSI benefits and interest on our National Debt (which will no longer be at near Zero%) plus all the other things government does and still allow for that work force to feed and house itself.
On October 19, 2012, at 11:59 AM, Dom m yDog w rote:
There is nothing in the SS, Medicare or all the government trust funds that has any economic value. The "value" in the trust funds is a promise to pay on the IOU's whenever current outlays exceed current revenues. And the money has to come from some mix of higher taxes, borrowing, reducing other expenditures or reducing benefits. SS won't go broke, but future payments will be reduced unless somebody comes up with a solution the looming SS deficit. It makes no difference whether the SS Trust Fund has $200 trillion in it or $10.00. It's only an accounting entry.
On October 19, 2012, at 12:00 PM, sjbpa w rote:
Thanks. There is so much fear around this subject. I loved the "naked lady" analogy. Social security can be easily fixed without cuts in benefits. It is an insurance policy that is very meager if you actually try to survive on it. But that is what it is; it is a survival thing. The truth is we wouldn't as a society take care of the people who did not thrive in the "private" system. We would leave it up to the bleeding hearts...it would turn out very sad for too many. If more people were paid a living wage ( i do think there can be some lesser paid jobs that provide an entrance into the job market) I believe that a lot of these issues would go away. I do not consider it a positive for a CEO to be making a million or more unless all of his employees are paid as well. I would rather pay real tax on investment income and have no tax on social security.
On October 19, 2012, at 12:02 PM, Rashom on66 w rote:
Actually Social Security pays better than most investments. For ever dollar that I pay my employer matches that dollar - guaranteed. And once someone retires the payments they get often exceed the amount they and their employer put into the system. It's a very good system that has been extremely beneficial to millions of seniors for close to 80 years. And I can assure you [from experience in my family] as a monthly payment it more than makes ends meet. Ending it and giving it to the private market would be one of the most foolish ideas in the history of foolish ideas. Someone mentioned the pension system in Chile as being a model of success to which I say are you kidding? It under performs and it's not actually completely private. The gov't has to back the guarantee payments . Social Security is better.
On October 19, 2012, at 12:07 PM, crcannone w rote:
This article is incorrect and misleading. Probably concocted by a delusional Democrat.

On October 19, 2012, at 12:13 PM, MythsAboutMyths w rote:
A quick visit to the Social Security (SS) FAQs page http://www.ssa.gov/oact/progdata/fundFAQ.html would have served the author and some of the commentors well. The Social Security Trust Fund does not hold negotiable government securities, it holds "special-issue securities", created by congress, which also declared these specials are not counted in official government debt calculations, but the SS cash is counted as general revenue for budget purposes. These "specials" can only be redeemed by SS at the US Treasury. If SS could sell its securities on the open market, the "trust fund" would indeed be a independent trust fund. But, since SS cannot sell (redeem) its "specials" anywhere but the US Treasury, and congress has already spent the SS cash, (remember SS cash is counted as general revenue, but not as debt in government budgets) the Social Security "trust fund" truly is an off-budget unfunded obligation of the United States. That is a difficult problem for the fiscal future of the USA.
On October 19, 2012, at 12:15 PM, GadiantonHunter w rote:
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Social Security is NOT insurance. It is a wealth redistribution scheme. It is a tax. In fact, as many have already noted, social security is a Ponzi Scheme. According to Wikipedia, a Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation If an insurance company ran their business in the same fashion as social security, the Federal Trade Commission (FTC) would have already taken it down. To be fair, social security is a legal Ponzi scheme and one of our first big steps towards socialism in America (Marx would have been proud), only to be rivaled by the creation of the Federal Reserve System and the Income Tax in 1912, 1913 - a legal monopoly in debt/money creation, and eventually with its own federal police force (IRS). Sad, but true, America and the worlds free market system has been eroding towards socialism every since.
On October 19, 2012, at 12:17 PM, Mam aVal w rote:
I have long felt that it should be the payroll tax, not the eligibility age, which should be raised, because, as you pointed out in the article, just because people are living longer doesn't mean they're able to work longer. Of course SS is a ponzi scheme, as are all insurance plans. But it is not an entitlement, as in being on the dole. I don't receive enough to live on, but it at least guarantees that I can pay the ongoing necessities, like my supplemental health insurance, car insurance, phone and utilities, and for that I'm happy that it's there!
On October 19, 2012, at 12:40 PM, jfrankh57 w rote:
On October 16, 2012, at 12:51 PM, TMFDiogenes wrote: " First, a declining proportion of workers to beneficiaries doesn't automatically mean Social Security can't support its beneficiaries because workers become more productive over time. Since 1980, productivity per worker has increased by 78% And precisely how does that result in more money into the Social Security system?" You end up with more Social Security payroll tax revenue per worker. You still aren't factoring in inflation...as Social Security payouts (and income/contribution per worker) goes up, the dollar is actually buying less...I don't even see anything close to breakeven...especially when the inflation that hasn't hit from Bernanke's current money printing scheme (Deflation of the dollar hasn't hit, yet.) Of course, Social Security wasn't meant to be a retirement vehicle...only an augmentation. My 80 year dad retired 15 years ago and his income from all factors (military retirement, investments, his second and third jobs and social security) equates to a purchasing power that has actually gone down...especially in an accelerated fashion in the last 3-4 years! My thought process is you need to set aside land and time to learn farming, greenhouse techniques, and animal husbandry to offset future inflation.
<<The Social Security Trust Fund does not hold negotiable government securities, it holds "special-issue securities", created by congress, which also declared these specials are not counted in official government debt calculations, but the SS cash is counted as general revenue for budget purposes. These "specials" can only be redeemed by SS at the US Treasury. If SS could sell its securities on the open market, the "trust fund" would indeed be a independent trust fund. But, since SS cannot sell (redeem) its "specials" anywhere but the US Treasury, and congress has already spent the SS cash, (remember SS cash is counted as general revenue, but not as debt in government budgets) the Social Security "trust fund" truly is an off-budget unfunded obligation of the United States. That is a difficult problem for the fiscal future of the USA.>> Marketable or not, the securities the Social Security's trust fund holds aren't "off-budget unfunded" -- they are included in the Treasury's tally of debt held by the public: "the Government has about $4.7 trillion in intragovernmental debt outstanding, which arises when one part
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of the Government borrows from another. It represents debt issued by the Treasury and held by Government accounts, including the Social Security ($2.7 trillion)..." http://www.fms.treas.gov/fr/11frusg/11frusg.pdf Conceptually, the trust fund is doing the same thing as investing in treasury bills.
On October 19, 2012, at 1:01 PM, cm porro w rote:
i think this article misses the big question. or maybe they don't want to create controversy. but why would anyone want to create these myths? someone is spending a lot of money doing so. why? to get there hands on the social security cash?
On October 19, 2012, at 1:05 PM, w yrdm age w rote:
I liked the article although it seemed heavily biased, but the best thought was by neocolonialist above: "Everyone wants security and fairness now instead or opportunity and freedom". People who believe that a government -- both parties -- who acquires taxes for SS but then spends the money on non-SS expenditures(promising to pay it back) will change its decades-old habit, cannot justify that belief based on SS history. I think more restrictions on Congressional ability to spend our taxes need to be installed. I don't mind a tax on my earnings to help out old people, and someone will be taxed someday to help me out when I'm old. What I mind is the falsehood that my SS taxes are put into a trust that collects interest and grows and remains stable. The root cause is not that SS benefits strain the system, nor that more SS taxes are needed (Congress would continue to borrow from it it no matter what amount is paid in). The solution is to require the gov to spend less money than it brings in so that the national debt can be reduced, and to keep SS money in the SS system. That will require far more sacrifice now than it would have previously, and becomes more severe each passing moment. Why hack at the leaves of the problem while the root remains, because of the belief that "the end justifies the means"? Helping people is important, but not important enough to justify irresponsible spending habits.
<<Social Security is NOT insurance. It is a wealth redistribution scheme.>> I don't want to get into an ideological debate about the merits of different programs or social contract theory, but if you think about it, the point of all insurance -- health, life, fire, flood, social security -- is to limit risk by pooling, investing, and redistributing wealth.
@ jfrankh57 Yep, that's true, but keep in mind that productivity gains generally exceed inflation. Plus there's (not insignificant) interest revenue.
Thanks everyone for the great comments/questions!

On October 19, 2012, at 1:14 PM, libertysdead w rote:
This article maybe accurate on its face but it's premise is naive at best and downright misleading at worst. I feel genuinely sorry for any reader who believes that we will have ANY money left in Social Security by 2027-30. I am very disappointed in Motley Fool for publishing such an article without any realistic insight into the treacherous footing our government's finances rest on. Motley Fools writers might be comfortable whistling past the grave yard but don't openly encourage others to take that walk with you. You can do better and your readers deserve better.
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On October 19, 2012, at 1:19 PM, x000ald000x w rote:
Funny how popular the intergenerational transfer of wealth is--with those on the receiving end. What is missing from this darn-fool analysis is the unseen destructive economic effect of an everincreasing burden on the backs of young working people. Was Medicare mentioned once in this article? You must ADD Medicare on the back of the Social Security burden. At least Social Security can be quantified. The future cost of medicare is wide open. The burden was tolerable when there were ten workers supporting each retiree. But now 10,000 of us retire every day, FOR THE NEXT 20 YEARS. The ratio will soon be down to 2 workers per retiree. There is only so much revenue that can be squeezed out of workers and domestic employers who are faced with merciless global competition. More and more activity will go into the unreporting underground economy, using barter or alternative currencies. You can throw out all the rosy and semi-rosy projections on revenue. The camel's back is cracking. We Baby Boomers will just have to take much less. We don't need 80% of pre-retirement income. We don't need a high life-style. Give up the major league season tickets or the cruises. Give up the RV and the travel. Give up the casino trips and the golf. Try walking. I am living quite comfortably on 30% of my working income. And unlike some of my wealthier friends, I haven't even started tapping into Medicare benefits at 65.
On October 19, 2012, at 2:05 PM, hdbpilot1953 w rote:
I was glad to see so many smart people explain how this article is a bunch of left leaning horse pucky. Everything I had to say was said, thanks,
On October 19, 2012, at 2:08 PM, TheSurge w rote:
5 Huge Myths is a truly myopic analysis of Social Security. Money paid into Social Security "is invested." It is invested in non-marketable Treasury obligations, and the money is immediately spent to fund current government operations. Any interest earned is a transfer payment from the Treasury to Social Security. The Treasury has to borrow money to pay the interest, and it must borrow the money to pay off maturing securities because the federal government spends more than its revenues. Social Security is a promise to pay that cannot go bankrupt as long as Congress authorizes the Treasury to borrow money. Social Security is a legal Ponzi scheme.
<<Was Medicare mentioned once in this article? You must ADD Medicare on the back of the Social Security burden. At least Social Security can be quantified. The future cost of medicare is wide open.>> The article was about Social Security, not the future course of all federal liabilities including heath care costs. Agree that rising health care costs are a much, much bigger problem than SS.
<<Money paid into Social Security "is invested." It is invested in non-marketable Treasury obligations, and the money is immediately spent to fund current government operations. Any interest earned is a transfer payment from the Treasury to Social Security. The Treasury has to borrow money to pay the interest, and it must borrow the money to pay off maturing securities because the federal government spends more than its revenues.>> See comments above... from the perspective of federal debt levels, this is conceptually the same thing as when private insurance companies invest in treasury bills.
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On October 19, 2012, at 2:33 PM, m ize30 w rote:
This article is very misleading, the problems facing Social Security and Medicare for that matter are far more serious than this article makes it out. I am a little ashamed of MF. Everyone should read the section on Social Security in Peter Schiff's newest book "The Real Crash".
On October 19, 2012, at 2:35 PM, m apsguy w rote:
The easy solution is to take it out of the general fund and eliminate the caps. Who cares what the 1%ers think. part of the reason they make so much more money than the bottom 75% is because today's corporations don't pay them what they are worth. At least give them the opportunity for a retirement that isn't under a bridge. While we are fixing things, we should also eliminate the tax deductions for the amount of any salary that is more than 50X the lowest annual wage. Maybe then we can reduce base corporate taxes to make it better to keep and open businesses here. If our big mouth CEO's don't like it, they can go somewhere else... Oh Yea, there isn't anywhere else to go that pays the stupid salaries they get... Too bad.
On October 19, 2012, at 2:36 PM, abujordan w rote:
You can argue that SS is a Ponzi scheme. I disagree. I think its more like a Vegas slot machine. You know the ones where the casino says they Pay out 98%. Everyone who is a tax paying wage earner is playing. They are hoping to get more out than they put in. Most trust what the Casino tells them. The Casino says you We pay out at least 98% back and dont forget to count the free drinks & music (interest) you enjoy while playing as part of your payout. Only a very, very small percentage of people will break even on the slots. These are the folks who live just long enough to collect what they put in, perhaps with some interest earned. A few players hit the jackpot by becoming disabled, widowed or orphaned. These are the folks who were injured while playing, or died while hitting the jackpot which was given to their widows & or orphans. I apologize for the spirit of this analogy. I also apologize for that pun. Some people play and never get any payback. They didnt play long enough for the jackpot to come around. Most people, however, they play long enough to hit the jackpot. They all see each other hitting the jackpot and wonder how so many can hit it. They dont want to think about it too much, because you dont want to mess with a good thing. Deep down, these people know that the only way this works is that the Casino must not be run well enough to know what they are doing. Not all Casino employees are idiots, but the bulk of them are, and they stop the smart ones from even trying to fix it. Still others play for years not because they want to, but because their bosses force them to play. They know they can never collect any winnings and that is why they dont want to play this game. And when the jackpot does hit, as it does for many of them, the Casino attendant cant find the player and the Casino keeps the money. The Casino knows all about these players, but they look the other way, because its good for the Casino even if security (other employees) doesnt like it. These are the illegal aliens that used fake documents to work in the USA (play the game). Rich people (making over the SS cap) also play these slots, but they also have other games to play that offer better payouts. Some of these games have more risk, like Craps or Roulette. If you are not rich, you really dont have enough to wager in these types of games to have any real hope of winning big or breaking even. Of course you always have the lotto. We all still have that.
On October 19, 2012, at 2:36 PM, iw riter w rote:
Thanks Ilan for writing this and also taking the time to respond to the comments. In balance I think your article is a good start and does contain many good points. I agree Social Security is not going bankrupt and could easily be tweaked ala Reagan and Tip O'neil... and also some of the points that you considered as well.
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However I think there is fundamental level of perspective on this that you have not clarified at least in my mind. By the way I am a Phd and have studied this some. What I do not think you have clarified is that during the Clinton Years many on the supporters of Clinton (and I thought he was a good president because of his capacity to compromise...so I am a moderate) have made the claim that Clinton Was able to balance the budget for 3 or 4 years or so. ANd many claim that he had a surplus? Yet if you look at the Dept of Treasury end of year debt figures that are done each year, you see that Clinton actually increased the debt each year except for one and that surplus was by a measly 20 billion dollars. There would not have been surplus at all if the excess social security funds had not been used to pay for general budget items. In fact all the years of his presidency included good levels of debt because of this loop hole. Also the total debt incurred by Clinton during his presidency was close to 1.8 trillion dollars or more.... I know for a fact that Social security money collected is used by the General fund to pay for other budget items. IN fact President Johnson was the first person to set this up by taking from social security to hide the true cost of the Vietnam war. They passed a bill that expired during the first year of the Clinton Administration. And Clinton along with his super democratic majority re-passed that law..which basically took money out of social security to pay for other budgetary items.... got rid of the lock box idea to use it to pay for social programs. If you look at the Dept of Treasury dept analysis each year you will notice that the money that is taken from Social Security to pay for other budget items is counted as debt in the total dept for our country for that year. That is why people are insisting that there is debt here. So You have to count that as an IOU. You can say that it is a special case because we can print money etc however even our treasure department counts this as debt. It is fuzzy math no matter how you slice it. You can not borrow money from a fund and than say it is solvent when you do it every year... I think this is why there is a problem with the two different perspectives being debated here. I know many on the left seem to think that social security is just fine as pay and go...but remember spending money we do not have because it entails borrowing from the SS trust fund, also adds to the debt. Like I said Our dept of Treasury even thinks so. I hope you get a chance to clarify this. I do not think that the answers you have given do so but maybe I am wrong....but in my mind dept is debt no matter if it an IOU or not.... thanks again for actually responding to these issues... it makes you stand out from many who do blogs...
On October 19, 2012, at 2:42 PM, JohnB001 w rote:
This guy has no understanding of how our government obtains and spends the money it takes in. He actually believes that the goverment can "set aside" or "save" its revenues. Buying bonds just moves the money from one pocket to another. Why would Fool publish such nonsense? My respect for Fool has dropped to almost zero.
On October 19, 2012, at 3:09 PM, Don2175 w rote:
Though I have viewed a number of the comments to this article that challenge these 5 myths with substantive arguments, let's assume for a moment that these 5 Myths are accurately described, including possible fixes. I am a natural skeptic of a what I consider a remote/disconnected Fed Government (Executive Branch, Legislative bodies, and Administrative services). Therefore, Executive & Legislative branches (regardless of party affiliation) would see willingness by voters to increase funding to cover the Social Security shortfall, as also willingness to increases income taxes rates to cover the rest of Federal Gov't spend. Reducing payout resonates with me, and I'm willing to be less dependent on SocSec payments, than increasing payments for the above reason. Why am I wrong?
On October 19, 2012, at 3:16 PM, rexregum 11 w rote:
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"FDR never intended for SocSec to allow people to live on it. You were supposed to have your own money set aside for retirement and not spend it all foolishly, expecting the government and SocSec to take care of you in retirement." That fact makes FDR to be a real fool/idiot because that is exactly what DID happen. So why don't we learn? So I take-home 75% of what my bills are and I'm not going bankrupt? OK, I'll remeber that for when I show up in court. Also "going bankrupt" and "is bankrupt" are two different things. Try to keep them straight people.
On October 19, 2012, at 3:43 PM, babbovicenza w rote:
Interesting thing about an IOU, since we seem to be on the topic of IOUs, is that it isn't a promise to pay...it just says that I owe you and that's as far as it goes. it's quite possibly eternal debt then, when the government behaves as if 'borrowing from ss' will be repaid. Eternal, until you slap the hands reaching in the cookie jar. In my opinion, on issues of money that don't belong to our federal government -- such as setting salaries and pensions for Congress (that's right, it isn't Congress' money until they cash their paychecks) and the social security fund -- some other mechanism should be in charge. Any ss 'fix' should first root out the problem of whose hands shouldn't be allowed to reach into the cookie jar and under what glaring parental supervision.
On October 19, 2012, at 3:50 PM, IRSEA w rote:
Great article. Articles like this have to be written again and again because people with agendas keep telling lies. All of the laws about Social Security have been online for many years. Plus all of the data that is used in the calculations. Anyone who wonders who is telling the truth can get it from the horse's mouth.
On October 19, 2012, at 3:54 PM, RadWriter w rote:
Well, this article proves one thing above all else. Most of the Foolish have bought into the paranoia and propaganda and have, indeed, willfully made themselves foolish ventriloquists' puppets. Ignorance knows no bounds when it is far easier than actually studying and learning.
On October 19, 2012, at 3:55 PM, thom 61 w rote:
My rock solid faith in the Fools has now been shaken. Why would you put this article as your premier article? Do you really believe that everything is ok with Social Security? Really? When Social Security was started, an "old" person could start collecting benefits at age 65. The average age of death at the time was 64. Nice! After most people are dead, we'll give the survivors some benefits. Today, you can still be Social Security retirement benefits at 65. The only problem is that we are now living to about 77. So the math doesn't work. Social Security needs to be privatized where each person is required to put 4%, or so, of there salary into a retirement account. Social Security needs to be means tested. If Warren Buffett wants to pay more, cancel his SS check each month. Income limit of Social Security needs to be $1,000,000. The age of eligibility needs to be a flexible formula e.g. 7 years before the average death age in any given year. Then it just constantly floats. And finally, a law needs to be passed that Social Security funds cannot be used for any other purpose.
^ Thanks, iwriter. Great points. I think this is exactly right how you put it:
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"If you look at the Dept of Treasury dept analysis each year you will notice that the money that is taken from Social Security to pay for other budget items is counted as debt in the total dept for our country for that year. That is why people are insisting that there is debt here. So You have to count that as an IOU." SS invests its cash in special Treasuries (IOUs). (There would be a problem if the Treasury counted the cash it collected as cash but didn't count the IOUs as debt. But they count both.) Think about it this way. In finance, Treasuries are pretty much interchangeable with cash. In fact, corporate balance sheets say "cash and equivalents" because that's what Treasuries are. (DIGRESSION: if you think about it, both Treasuries and cash have value because they're backed by the same thing -- the faith of the United States Treasury. All currency -- whether it's paper, bonds, gold, salt, bank deposits, whatever -- is just an IOU for goods and services that's backed by the belief that others will accept it from you because they believe others will accept it from them. END DIGRESSION.) From its most recent (june) 10-q, Apple has $117 billion in cash and st/lt marketable securities on its balance sheet. $114 billion of that is in the form of IOUs (money market funds, treasuries, commercial paper, corporate securities, etc.) They could keep the money under their mattress, but it makes more sense to put it somewhere where it's safe and can collect some interest. That doesn't mean Apple's money ceases to exist just because there's no physical box with money in it, or that banks steal our paychecks and replace them with worthless IOUs (bank deposits). Money is being exchanged from cash into other securities. These IOUs are real! If I deposit $100 in a bank in exchange for a $100 IOU, its NET debt change by $100 IOU to me - $100 cash = $0. And my NET assets are still $100 ... even though I don't have cash anymore, I have an IOU insured by the federal government. Apple didn't increase the federal debt when it bought $20 billion of Treasury securities -- nor would Apple have increased federal debt even if it had lent the money directly to the federal government. Spending more money than you take in (deficits) is what causes debt to increase. Social Excluding other forms of securities the trust fund could purchase, I guess it would be possible for Social Security to fill a room full of x dollar bills and have the government borrow the money from private investors or foreign countries so non-public entities can collect those interest payments instead of us, but if $x in debt is going to be issued, wouldn't it be better for the interest payments to go to Social Security instead? Security is basically a lender to the gov't -- it's not the source of deficits. And precisely because SS is not under current law allowed to spend beyond the value of its savings+revenue -- because estimated future shortfalls lands on beneficiaries instead of the gov't if they're not corrected -- current law doesn't allow SS to add to national debt. I think that's the way to think about it. Hope that helps to clarify?
<<Do you really believe that everything is ok with Social Security? Really?>> No, I don't think everything is ok. See #2 in the article.
On October 19, 2012, at 4:13 PM, PonderingItAll w rote:
I just think of Social Security as the most-conservative portion of my retirement savings. I don't need to invest personally in any government bonds, because SS is already doing that for me. I have plenty of other vehicles for retirement investments with higher risk/higher return characteristics, such as a SEP-IRA at work and a large ROTH IRA holding all of my previous job's 401Ks and individual IRA contributions. I can even (and do) trade options in that account. Diversification is a good thing, but only if you diversify your risk level as well. All the proposals I have read for privatization ignore this fact. If you don't have much more than your Social Security invested for your retirement, then you need the security of a nearly-bulletproof investment.
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If you do have substantial investments other than SS, then have at it: Take the higher risks you seek in those accounts. Do your tricks on the high-wire, and SS will serve as your safety net if you have a catastrophic failure. Getting rid of the safety net just so the high-wire can be a couple of feet higher is insane.
On October 19, 2012, at 4:15 PM, m obileadam w rote:
No offense to Ilan Moscovitz, the author of this article, but the comments have been more insightful and enlightening than the article. Thank you to everyone who has posted and contributed!
On October 19, 2012, at 4:28 PM, Em peror2 w rote:
I'm old. I can remember when Fool.com had intelligently written articles.
<<No offense to Ilan Moscovitz, the author of this article, but the comments have been more insightful and enlightening than the article. Thank you to everyone who has posted and contributed!>> None taken! Ilan
On October 19, 2012, at 4:41 PM, RadWriter w rote:
iwriter, You are quite right when you note that the Social Security Trust Fund has been used to disguise the General Fund deficits. The huge panic-induced increase in the FICA tax for the SSFT due to the ReaganGreenspan "commission" in 1983 was totally an attempt to hide the failure of the supply-side tax cuts to produce the predicted revenue tsunami. Every president has used the SSFT surplus to hide the budget deficits. Why did you not mention Reagan and both Bushes? But here are a few questions for you. What would you have the Trustees do with the growing fund? What do you do when you have more income than expenses and want to set something aside for your retirement or for unexpected medical emergencies? I invest it. Since the stock market has demonstrated that it cannot produce a constant return, where would you invest money that absolutely has to be available at a specific moment in time? 401(k)s invested in the market have recently proven to be inadequate. [The 401(k) likely was created to permit employers to break their contracts with employees by ending their pensions and to destroy Social Security as a retirement program by eliminating all monies put into them from FICA.] The safest investment on the planet is widely considered to be US govt. Treasuries. Millions of people worldwide own them as do many nations. The SSFT is the holder of over $2.6 trillion of (non-tradeable) US Treasuries. Why is that not a good investment for the Trust Fund but a safe investment for everyone else? As for the projection that the SSFT will run out of surplus, I would ask you to state what is the assumption used for wage growth subject to FICA? Is that assumption historically valid or is it quite pessimistic? If it is historically valid, why did the annual projection of the fund's exhaustion date get pushed further and further into the future throughout the 90s and most of the 2Ks until this Great Recession? When/if we get out of this GR, we are likely to see that exhaustion date push into the future once again. What will that say about the whole notion that the Fund will run out at any time within the 75 year window?
On October 19, 2012, at 4:50 PM, TaxCoach w rote:
Motley Fool...to educate, amuse and enrich...A fool indeed, hardly educating. Where is there a balance sheet of Fed showing XXX in cash and XXX in Liabilities as of today. I don't think it exist. There is no
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XXX cash fund. SS can go broke, the money goes into general fund and is spent, that is why they have to increase debt limit to continue paying out mandatory expenses (ie SS benefits). According to CBO charts the Debt will skyrocket, a large part to the net shortage resulting from SS. I don't know who Ian is, but most of this article is laughable, so it held up to one Motley Fool greed...amuse
On October 19, 2012, at 4:52 PM, Viking1931 w rote:
There are very few people alive today who were among those who got a Social Security Check in its first year of payout, 1940. I am one of them. My father died in 1940 and my mother got a check in my name as a "survivor." Since that year, when I was 9 years old, I have heard the same tired anti-Social Securtiy arguments. One neighbor actually told my mother not to apply for a widow's pension. "there is no money there," he said,"FDR has taken the money and spent it on other government programs."
On October 19, 2012, at 4:54 PM, redtailhaw k w rote:
Hey guys, please reissue this post, I tried select all>copy in Word and it still didn't print!
On October 19, 2012, at 5:11 PM, Eddie66 w rote:
Having looked at this issue for a while, I think the article is on target. Some things to think about: The surplus paid in over the last 40 years (trust fund) was real money from the wages of workers, and should be treated with the same respect as the money owed to China. I find it mind boggling to see some suggest that our obligations to China are real and those to SS are not. Then, is spending related to the money coming into the trust fund? While the "echo chamber" says the money was "taken and spent" as if it were cash in pocket, the fact is that the Government has run a deficit for many years, and as long as they can sell the bonds(and they have, even now) there is no justification for associating spending with SS revenues. If SS was just breaking even, the money would have been spent, just borrowed from other sources. the only enabler is that the Government has offset the SS surplus against the spending deficit, thus making the deficit look smaller. The next thing I wondered is why payments from the trust fund back to SS would be any different than refunding other bonds. The government rolls over much of its debt with no issues, borrowing money from new lenders to repay old lenders. The only difference is that SS rollovers go onto the deficit, making it larger. The interesting thing is that although the deficit gets larger, the debt to SS is already in our $16T, so that part of the deficit will NOT increase the national debt.
<<I don't think it exist. There is no XXX cash fund.>> The 2012 report is linked to in the article: http://www.ssa.gov/oact/tr/2012/tr2012.pdf "Income based on taxation of benefits amounted to $22.2 billion in 2011.... In 2011, the OASI Trust Fund earned $106.5 billion in net interest, which consisted of: (1) interest earned on the investments of the trust fund; (2) interest on adjustments in the allocation of administrative expenses between the trust fund and the general fund account for the Supplemental Security Income program; (3) interest arising from the revised allocation of administrative expenses among the trust funds; and (4) interest on certain reimbursements to the trust fund...."
On October 19, 2012, at 8:05 PM, ram botrader w rote:
The concept of increasing population so that the ratio of workers to social security recipients stays high is
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a losing strategy. It is the same as world population increase and ignores the fact that at some time the game is impossible to continue as the world is a finite place. Much better to wear the decrease in the ratio which will right itself once the baby boomer generation pass on. Some of the other strategies are also bad. I mean who wants to work to 85 and then drop dead a week after retirement. it might be what the government wants but this ignores the fact that most people, especially those in high stress jobs, want to retire and have a few good years of life before they pass on. Seems reasonable, fair and logical to me and nobody needs to be robbed of this right. If the rich once again are forced to pay tax rather than use their well funded lobbyists in Washington to negotiate unfair deals so that their bank accounts are protected from the tax man then maybe we wouldn't be having this type of conversation.
On October 19, 2012, at 8:18 PM, bonair10 w rote:
The individuals that refer to Social Security a ponzi scheme are the same individuals who don't bother with facts. They receive their information from Fox "so called news". The myth article of Social Security is a correct analysis if one looks at the actual facts! Everyone is entitled to their own opinion but not their own facts.
On October 19, 2012, at 8:26 PM, Wotcha w rote:
The Social Security's finances are public sector accounting and they're 100% transparent. People should be more worried about private sector accounting which landed us in the swamp in 2008. Assets were 'guaranteed' by house of card guarantees where the ultimate guarantor was unknown.
On October 19, 2012, at 8:39 PM, HMan570 w rote:
The so called myth about SS is not what's wrong with it as much as who stole all the money from it. We all know that the SS system was started to help people when they retired. At that time there was 27 people working for everyone collecting. When Ike took office he seen all that money just sitting there and used it to pay the Korean War Debt from the books. After that is was a fund for the politicians to do with as they pleased and know bother bothered to stop them. I don't know why they felt the money was theirs as millions of hard working people put that money there for a reason not for the politicians to steal. Forgot Politicians don't steal they just make laws to get around other law's that were in place then exempted themsleves from prosacution just as they have been doing for the past 40 years. Our politicians have placed themsleves above the people for so long that it is a commond thing to do today. We are lied too, our Constitution is spat upond by the very people we elect to uphold it. The two parties feel that the people are to dumb to make a descission on their own. They make policy to put into office whom ever they dam well want.. We have no say, look at the two jerks runing again this election. We are loosing our freedoms slowly and know one cares. We just sit back with out remotes and allow it to happen. I don't know where the ACLU has been but it is surely not protecting the rights of the People by our crrupt politicians. It is time to stop sending lawyers to Washington and our State Houses and send Scolars and average people. Terms limits set by the people not by the poeple that are in the seats they hold no pensions and no free health health care the rest of their lives. If they pass a law they must live under that law just like the people they force to do. Our Politicians have placed themsleves way above the people and it is time to bring it to a halt. No more life time politicians 1 term for a Senator and 2 terms for a Congressman and they go home and earn a living just like the average man. They are no better then us and never will be. I just wish people would stand up for a change a real change and dump all the politicans at one time.
On October 19, 2012, at 10:39 PM, Sunny7039 w rote:
After reading the article and the comments, a person can come to only one conclusion: Reasonably educated people do not even agree on the most basic facts concerning Social Security. That, in itself, is a travesty. If there is one thing the government absolutely owes us, it is a correct and cogent explanation for what is happening. They are taking our money to fund the system, and to pay themselves salaries manage it. And yet, we don't know for sure exactly how it works -- as is amply evidenced right here, on this page.
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What a disgrace. As for needing to fear private sector accounting even more, I'm afraid that's true as well. But at least we know to fear them. At least we are on guard, and know we should be skeptical, and have the right to decide where to park our money and where not to. When it comes to Social Security, it is government's most basic duty to report the unvarnished truth to us. The same was the case when they decided to bail out the banks, with barely a word to us, much less a well-developed theory as to why they did it, who was responsible, and what was likely to happen next. If I hadn't seen it, I wouldn't have believed it.
On October 19, 2012, at 10:52 PM, Sunny7039 w rote:
P.S. Please don't give me a link to a 550-page jargon-laiden .pdf file. I know how to find those. (And do you find them helpful? Really?) It should be part of Civics class that absolutely every American worker know exactly how Social Security works. And if people graduate from high school without this information, then classes can take place at public libraries, in community centers, or in other public buildings. They can be set up by our members of Congress. Reports, with ample references, should be aired on NPR and PBS. The basic facts about the system should not be a subject of debate.
On October 20, 2012, at 5:53 AM, Tom Lansford w rote:
A well written and reasoned article which addresses the popular misconceptions as portrayed in short news sound bites. Nice to see a commentary which does not mis-represent the facts for partisan purposes. When Americans understand the real situation with SS, then there can be a dialog on how to tweak the system to make sure that future generations have the same basic level of social security for which the plan was designed.
The bottom line is the state does not have its own money - only what it takes from its citizens. Whatever mental / accounting gymnastics are performed (see article) you cannot avoid the reality that the USA is the greatest debtor the world has ever seen. It must pay out less than it takes from its people, otherwise it will increase and not decrease its debts - FACT. Every housewife understands this, but the author doesn't. If increasing right to state handouts/dependence are a cost to be burdened upon a shrinking proportion of net contributors to the state coffers, then the USA is on the fast track to the poor house. This is a fact, regardless of the article contents. It's as certain as any law of physics such as the second law of thermodynamics. Unfortunatel the weakness of a democracy is that more and more people come to depend on the promises of their politicians, and vote for the ones who promise them what they want, without understanding that these promises cost money, and money does not grow on trees. If it was true that SS funds are rosey (which it is not) then only a fool (a real fool) would conclude that we should keep spending it as if everything is fine, when the nations debts are at global and historic records levels. This story does not end well, especially when you have people doing sommersaults like this to avoid the underlying reality of the situation.
On October 20, 2012, at 10:21 AM, koan4u w rote:
I find it interesting that the commenters who are disputing this article which is ENTIRELY TRUE are in all likelihood politically motivated because they are unwilling to believe that the most successful government program to benefit the middle class really works..
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As it states all we need to do to fund it in perpetuity is to remove the salary cap and let the rich pay their fair share.. However the incredible hubris and greed of these people compels them to continue to perpetrate the lies and propaganda which are the mainstay of the Republican Party.
On October 20, 2012, at 7:31 PM, ducky106 w rote:
Another problem is inflation. The government deliberately cooks the books when reporting inflation so that they can hold down Social Security payments. It's not a secret. They have admitted it. You may be collecting $30k/yr in benefits, but your gas bill will be $1,000/mon by then. To see the real numbers on inflation go to shadowstats_com.
On October 20, 2012, at 8:07 PM, ducky106 w rote:
In the documentary; "Koch Brothers Exposed", it says that all these studies claiming that Social Security is bankrupt are funded by the Koch Brothers because they have made it their life mission to kill it off.
On October 20, 2012, at 8:14 PM, covenantfarm w rote:
Finally, there are other, perhaps more significant reasons for the projected shortfall, including declining birth rates and rising income inequality over the past several decades. Declining birth rates in two forms: fewer live children per household and over 50 million children aborted since 1973. And we wonder why SS is underfunded.
On October 21, 2012, at 1:55 AM, rfaram ir w rote:
Social Security has revenues? Really? I had no idea they offered a product on the free market which people voluntarily purchased, seeing the great value in it. No? That's not what you meant? You mean it's not voluntary, and if you try to not purchase this fine product, men with guns will show up at your door and demand payment? Ah, you mean theft (extortion, taxes, same thing), not revenue. "Or we could cut benefits" Excellent. Something we agree on! Only by reducing the promised distribution of the spoils can justice be done. Ideally to zero. The problem is not a shortage of 'revenue'. The problem is that politicians are promising to steal people's money to 'redistribute' to an extent beyond their capability to actually do the thieving. Distributing stolen goods is wrong. Stop doing it. Voluntary retirement programs are available for those who want them. Direct people to them, instead. lbruch: "I wonder if those who dislike social security, or who accuse it of being a ponzi scheme, also dislike life insurance, health insurance, property insurance, auto insurance" Since each of those is voluntary, I have no problem with them, unless they are based on fraud. With no actual management of fund assets and only paying benefits from new entrants, then that is a Ponzi scheme. Not telling people that that is what is going on, makes it fraud, instead of the open Ponzi scheme that SS is. Genuine insurance of any of the kinds mentioned are not. Reading many of the other comments has sure raised by faith in the Fool community, though!
On October 21, 2012, at 8:59 AM, Kosar w rote:
I read this and just started laughing as I remembered Dana Carey on SNL imitating AL Gore and the "lock box"......at least that was intended as humor!
On October 21, 2012, at 12:47 PM, borneofan w rote:
Please refer to the success of Chile in replacing their old system similar to FICA, with a much better system.
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A minimal guarantee of retirement income, regardless of contributions (tiny pension for the truly poor). Inheritability! To break the cycle of poverty. Default index investment . Absolute minimal cost, nothing for the financial parasites. Flat rate taxes to fund the system. Fund retirement without crippling taxes on the youth that wrecks productivity and creates unemployment.
On October 22, 2012, at 6:36 AM, peterjlist w rote:
People complain about that $110,000 cutoff, but not having it would deeply affect me and the way I run my business. I earn maybe $150,000 as a self-employed business owner, but nearly all of that money is IN MY BUSINESS, i.e. I don't touch it or have anything to do with it. Yet because I'm not a corporation (i.e. I choose to not be double taxed as the corporate and personal level), I pay 30% of my income to SS up to that $110,000 level. It's reasonable that I, a normal guy who is planning well (I am paying off my house at a fast rate so i can be done by the time retirement rolls around) should cover the SS payments of myself and 3-4 other people, which is what I'm doing. If I had to pay 30% + my normal taxes with no limit, I'd utter some very rude words and close my business down, or structure it so it was just me and 1-2 other trusted employees, and we'd all make sure we earn a reasonable amount yet didn't have to pay too much in taxes. Read my lips: if I have to may more than 50% of my money in taxes that don't benefit me, I won't do the work. I work 2-3 times as hard as a normal person, that's fine, but if I only get 35% of the benefit of that hard work, I won't do the work in the first place. Not sure about the thoughts on trust fund babies, I am just trying to show that that cap on SS taxes is reasonable, and if it weren't there I'd stop working in July or September.
On October 22, 2012, at 8:07 PM, invirginia w rote:
Good Lord....I'm stunned to read these comments. Soc Sec was never designed to totally support you in retirement. It is a floor....a safety net, so to speak. Considering the evidence that so many working Americans are not saving nearly enough for retirement, I can't believe so many folks thinks Soc Sec should be privatized. Get real folks, considering what happened to the market a few years ago; my IRA lost 50%. When you have an uneducated public....and argue about that all you want....it would be a big mistake to privatize. Sure, change it....change the income cap. Raise the retirement age a bit. But DON'T privatize it. Or eventually you're gonna have a whole lot of poor elderly folks. What are you gonna do with them?
On October 22, 2012, at 8:53 PM, 1oldhat w rote:
insurance payouts started to exceed income in 2011 ; raising cap to infinity on wages alone will not solve problem ; shortfall was also caused by cola + adding people [spouses ,children,disabled]
All I can say is 'wow;. This is a topic that won't die. First of all, I would like to apologize for my use of inappropriate language in a previous post. Does anybody here remember the shock they got, their first job, their first paycheck and they saw how much of their money was gone. What the fark?!!!! As a young man, I didn't have the discipline to invest or save. Actually, I didn't care about money at all. Maybe that is one of SS's only redeeming feature. What is the rate of SS withholding now for an employee? 6-7%? If you are self-employed, double that. Does anybody really think that that money comes out of their pocket? It is just less money they have to pay you.
On October 23, 2012, at 8:05 PM, edshire1 w rote:
39/42
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Payroll taxes amount to 14 % are collected on all wages. SSA lends this money to the federal government for use to pay its bills. Theoretically the SSA is collecting interest on these monies. Revenue is currently greater than payouts. So where's the problem? When SSA reclaims some ot the money that it leant to government, it is charged with adding to the deficit. But obviously, it is not the cost of SS payouts that add to the deficit. Those payouts are being paid from SS revenue. If the government included the monies received from ssa as deficit spending owed to the SSA and retirees the true size of the federal deficit would visible. Trillion dollar wars result in deficit spending. Paying millioaire farmers not to grow wheat could result in deficit spending. So could paying for an overstuffed military. But paying back money borrowed from retirees is not deficit spending.
On October 25, 2012, at 5:29 PM, ElRem aro w rote:
On October 15, 2012, at 6:36 PM, neamakri wrote: "The obvious permanent solution is to privatize Social Security. It has already been done successfully years ago in Chili. All we have to do is copy their pattern, no reinventing needed!" In the 12th edition of Global Studies; Latin America, Paul B. Goodwin wrote: Since 1981, all new members of Chile's labor force have been required to contribute 10% of their monthly gross earnings to private-pension-fund accounts, which they own. Unfortunately, in 2006 new retirees discovered that their pensions fell far below the guaranteed threshold. One reason was that expenses for managing the funds consumed as much as 33 percent of worker's contributions." I would much rather have our social security system.
On October 28, 2012, at 8:54 AM, firem achine69 w rote:
This article is so fundamentally flawed... For starters, "income" will be nil when inflation finally catches up to the economic realities of printing one's own "blank check"...
On October 28, 2012, at 5:57 PM, Reniekan w rote:
:To clarify some issues: When Roosevelt set up SS, it was set up as a fund to be used for SS, not to be used as the government for general funds. Politicians changed that later. (just think how much money there would be in the fund in later years) Until the 70's, there were increases in the FICA tax every 2 or 3 years, even if it were a few % points for employer and employee. There has not been an increase since despite inflation. And, the only people who payed $33 a yr. maybe were the ones who were in the program in the beginning. This country is in debt because taxes were lowered during the Bush administration despite fighting 2 wars. Tax cuts were supposed to stimulate the economy by increasing investment - 10 years have only seen American businesses increase investment in other countries and leaving their money there. Americans pay lower taxes than most industrialized countries. This country needs to lower expenses and increase taxes like it or not-just like families have to do. Also, $20,000 income is poverty wages to support a family of 4 - can't be done realistically without help from the outside.
On October 31, 2012, at 12:13 AM, napstuh w rote:
I know I'm wasting my time, but please ignore 95% of the commetariat. They are trolls and/or ignorant fools. The author of the main article knows that which he speaks. The commentariat have an agenda to confuse the public. Plain and simple. Someone faulted the Social Security Trust Fund for not investing in the private sector. You should go back and read the historical discussions about why the current method was chosen. Which companies should the funds invest in? Who decides? What if this becomes political? Do you want your government choosing which financial instruments to invest and which not?
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Thinking of the last 10 or 15 years alone, that would be a very bad idea. The Social Security Trust fun is used as an accounting mechanism to shore up the budget, but that doesn't take away the from the fund. It's just assets - liabilities. The assets are still assets. If the government wants to play games with accounting and every pretends that's okay, the assets are still assets. The value of the fund doesn't diminish. It just means our political leaders will eventually won't be able to use the assets in the trust fund as means to conceal how much money is actually being spent. It's really that simple.
This is not much different than if someone includes the value of their house as part of their net worth. Your liabilities are expected to paid out on a monthly basis not different than any business, or government. Assets minus liabilities doesn't negate either one. Assets are still assets. The money doesn't get spent because they aren't cashing in the assets. Just like when you take a loan out on your house. You're paying off the loan doesn't result in the diminished value of your house. Your house is an asset not any different then the Social Security Trust Fund. The government sells loans call bonds and dollars everyday and everyday people buy them because they retain value for a long period of time. Using the Social Security fund as an asset to secure these loans is no different than a customer using their house as collateral. It doesn't mean the Social Security fund is being spent, no more than your house got sold when you used it as collateral. The government pays the interest without any problem, so there is nothing to worry about except stupid politicians and person's with hidden agendas.
And it's an insurance system people. You think you are so smart and saavy that you can make the right choices and invest in the right companies at the right times. All while making less then 30, 40, 50 , 70, 100 thousand a year. Go for it. Many have tried. Too many have failed. And so we base are entire retirement system on these percentages. Are you so willing to believe that you will be in the win bracket and avoid the financial shocks that happen once or twice every decade? Social Security Insurance guarantees a minimum floor of retirement. Otherwise we'd have 30% or more of our older citizens liveing in abject poverty. That's why the system evolved from the Townsend Committees in the 1930s. The shock of so many old people living off of scraps and out of garbage cans by the restaurants. All over the United States. Oh how we do forget the past.
On November 02, 2012, at 6:03 AM, thidm ark w rote:
"If SS is a Ponzi scheme, then every insurance company in the world is a Ponzi scheme. If using one person's premiums to pay another person's claims freaks you out, you should keep your distance from Berkshire Hathaway, too." If Berkshire runs its business like the government runs SS, I sure the hell will ...
On November 04, 2012, at 3:06 PM, trlkly w rote:
Okay, people. If you are referring to Social Security as a Ponzi scheme or using the word IOU, you have gotten all your information from non-experts, and are not an expert yourself. You thus discredit everything
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you say about the subject. Real economists know that Social Security is not a Ponzi scheme, and that investing in treasuries is not an IOU. The former is self-evident, as there is no profit being made nor is anyone being misled. For the latter, I will use a simple analogy. Investing in treasury bonds is like depositing your money in the bank. The bank will lend your money out to other people--that's what they do. Does this mean that you no longer have your money? Of course not. At any time, you can go back and get the money out. Heck, if you wait long enough, you'll get extra money, which is the interest other people pay you. This is exactly how a treasury bond works. Now, if the people you lend your money to have a large chance of defaulting, then the bank has a problem, and will go insolvent quickly. The equivalent with a treasury bond would be the government defaulting on its debt. But this has never happened, and we have no reason to believe it ever will. The U.S. government has always paid back its bonds--that's how it's still in existence and hasn't gone insolvent. This is completely different from an IOU, because an IOU written to yourself can be left unpaid, and there's no consequence. A U.S. treasury bond cannot be left unpaid, by law. Just like your check amount will be paid, by law.
On November 15, 2012, at 6:40 PM, Lizardbelly w rote:
I think Motley Fool needs to publish a retraction on this article. Although Social Security has been running a surplus for decades, Congress borrowed that surplus and replaced it with an IOU, not US treasuries. The IOUs are printed in one corner of an office and placed in a safe in the other corner of the office. That safe is the closest thing there is to a so-called "trust fund." No that it is time for social security to draw down on its trust fund, the trustees have to go to Congress and ask them to repay the IOUs. Where does this money come from? The money that will be needed to keep social security solvent comes from our country's general budget. In other words, since Congress spent the surplus and replaced it with IOUs, we current taxpayers are not only paying into the system to support current recipients but we taxpayers are also going to have to repay the IOUs because Congress spent the money in prior years. Social security will only be bankrupt when Congress can no longer gain our agreement to pay into the system and to repay the IOUs. Let's get our facts straight.
On November 15, 2012, at 6:58 PM, NOTvuffett w rote:
Tell me again how SS isn't a huge Ponzi scheme, lol.
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5 Huge Myths About Social Security

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5 Huge Myths About Social Security

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5/5/13