Myths and Misperceptions

Social Security is "going broke"

One of the administration's favorite claims is that "Social Security is going broke" -- re-enforcing the impression that there will be nothing there to pay the 20-somethings when they retire./1/

Fortunately, it isn't true.

What will happen is that, in the next 15-20 years, social security will start paying out more than it takes and that, by the middle of the century, it will have exhausted its reserves (the trust funds). Because, under current law, social security cannot borrow money, it will have to reduce benefits by about a quarter, gradually rising to about a third./2/ If nothing is done, benefits will continue to be paid, but at the lower levels. Remember, there is still a steady stream of revenues coming into the program.

Those who think of this as "going broke" often argue that "If you could pay only 75% of your mortgage and utility bills, you'd be going broke, too." But that doesn't follow. If you could pay only 75% of your mortgage and utilities, any sensible person would move to a home where the mortgage and utility bills were only 75% of what they had been.

This difference is critical as the administration's plan (so far as the administration has presented a plan) would have cut guaranteed benefits by roughly 40% from those projected by the middle of the century.

If a 25% reduction in benefits is "going broke", one can only wonder what is a 40% reduction is.

Notes:

1. See, for example, the President's radio address on March 12, 2005.

2. The approximations are not because more precise figures do not exist -- just that various sets of precise figures (particularly the CBO's and the SSA's) vary, with the SSA being somewhat more pessimistic.