America lacks faith in the Social Security retirement system.
Transamerica Center for Research Studies recently asked nearly 6,000 workers across all age bands if they're concerned that "Social Security will not be there for me." Nearly eight in 10 said yes.
That pessimism is in some ways understandable. The words "insolvency" and "bankrupt" seem to go hand-in-hand with any public discussion of the program. Social Security Administration's annual report discusses when the retirement fund will be "depleted." (Current estimate: 2034)
Yikes. That sure sounds like doomsday. But it is seriously misleading.
Fact 1: It's not going broke. It's got a cash flow problem.
Let's start with a quick review of how the program works. Retirement benefits are funded by the FICA deductions on your paycheck. Self-employed workers pay via quarterly estimated tax payments.
The trust fund is like a savings account, paid into by today's workers, available for retirees. When more workers pay into the system than there are retirees collecting benefits, the trust fund grows. We're now on pace for the fund to run dry in 2034, as gobs of baby boomers collect benefits -- and live longer -- and there are fewer wage earners.
Depleting the trust fund does not mean benefits stop. There will still be plenty of workers paying into the system. That's often overlooked. The problem that needs fixing is that the ongoing cash flow from worker contributions will not be enough to pay retirees 100% of their benefit. Without changes, that would require scaling back benefits.
Fact 2: Worst-case scenario is that you'd receive only about 75% of your retirement benefit.
If Congress does nothing between now and 2034, Social Security would have to rely solely on current contributions from today's workers. Beneficiaries would have their payments reduced by 23% in 2034.