For 89 years the Social Security program has been protecting Americans against the loss of income due to retirement, death or disability. About 183 million workers and their families were covered by their contributions to Social Security in 2023, and almost 68 million Americans received Social Security benefits.
Social Security is an enormously successful program which is essential to the retirement security of the vast majority of Americans. For many, Social Security is their single largest source of retirement income. Overall, Social Security benefits represent about 30 percent of the income of people over age 65. Among beneficiaries age 65 and older, 37 percent of men and 42 percent of women receive 50 percent or more of their income from Social Security. Additionally, 12 percent of men and 15 percent of women rely on Social Security for 90 percent or more of their income. According to the Census Bureau, Social Security was the ONLY source of income for 28 percent of adult recipients in 2021. Without Social Security, almost 40 percent of the elderly would fall into poverty. Social Security provides a sound, basic income that lasts as long as you live.
Despite Social Security’s continuing successes, the program is under attack by those who would like to privatize it. Some young workers are intrigued by the idea of diverting their payroll taxes into Wall Street accounts. Proponents of privatization promise ownership of accounts and big investment returns. They argue that Social Security is in a deep and immediate financial crisis that cannot be resolved without dismantling it and converting it into a system of market-based individual investment. To support their arguments, proponents of privatization have used misleading arguments about the nature of Social Security, the crisis facing it, and the value of converting Social Security to private investment accounts. Here are some of the myths and realities surrounding the Social Security debate.
Myths and Realities
Myth 1: Privatization is a plan to save Social Security.
Reality: Privatization isn’t a plan to save Social Security. It is a plan to dismantle Social Security. Private accounts do nothing to address Social Security solvency. In fact, because private accounts are financed by taking money out of Social Security, privatization nearly doubles Social Security’s funding gap and moves forward the date of its insolvency.
Myth 2: Returns from private accounts will make up for the cuts in Social Security benefits.
Reality: Privatization results in huge cuts in Social Security benefits with no guarantee that private investment can replace lost benefits. Most plans would reduce guaranteed Social Security benefits over time, even for those people who do not choose a private account. For those who opt for a private account, benefits would be reduced even further.
Myth 3: Private account assets can be passed along to one’s heirs.
Reality: Privatization leaves little to be passed on to one’s heirs. Many plans would force account holders, upon retirement, to use the assets in their private accounts to purchase, at a minimum, an annuity sufficient to raise their total remaining Social Security benefits and monthly annuity payments to a poverty level income. The remaining assets in the account could then be used during retirement to make up for the plan’s huge cuts in Social Security benefits. Only the excess after required annuitization and after expenses of retirement would be available to pass on to one’s heirs. This is likely to amount to very little.
Myth 4: Private accounts are voluntary.
Reality: Private accounts may be voluntary, but the cuts are not. Even for those people who choose not to participate in a private account, Social Security benefits would be cut. Those cuts would effectively transfer money from those who opt out of accounts to those who opt in, forcing workers who decide against exposing themselves to the risks of Wall Street to subsidize those who are more willing to gamble with their retirement.
Myth 5: Privatization will exempt retirees and near retirees.
Reality: Retirees and near retirees should not count on being exempt. Because privatization diverts some of the employee-paid Social Security tax away from Social Security and into private accounts, Social Security’s financial status is worsened and benefits for every retiree are threatened. In order to continue to pay benefits to retirees, privatization plans would require the Treasury to borrow trillions of dollars over several decades, causing an already huge federal deficit to balloon. This will increase the debt burden on all Americans, forcing policy makers to consider cuts in all federal programs, including Social Security.
Myth 6: Younger workers will receive a higher rate of return under a privatized system.
Reality: Younger workers are likely to realize little advantage from plans to privatize Social Security. That is because younger workers will have to pay twice – once to fund the benefits of current retirees under Social Security’s pay-as-you go system and a second time to fund their own individual accounts. The Congressional Budget Office concluded that the costs of the transition to a privatized, prefunded system would reduce the rate of return on today’s young people, the transitional generation, to a level lower than the rate of return on Social Security.
The Realities About Social Security’s Solvency
Social Security is a successful program that will be able to pay benefits for many years to come. This year Social Security has an accumulated surplus of about $2.8 trillion. Social Security will have sufficient reserves to pay benefits until 2035. Even after 2035, there will be enough money to pay 83 percent of the benefits owed, according to the Social Security actuaries.
The Social Security program’s assets are held in the safest investment available – U.S. government securities. Those securities are legal obligations of the U.S. to pay principal and interest to the holder of the bonds. The securities have the same status as U.S. government bonds held by any other investor, including individual Americans and pension funds, and the Social Security Trust Fund has a legal obligation to pay full benefits as long as it has the funds to do so.
Conclusion
Many myths and misconceptions have contributed to the belief that Social Security is in imminent danger and that Social Security privatization is the answer. Nothing could be further from the truth. The reality is that Social Security will continue to provide millions of retirees a sound, stable retirement. It may require some modest adjustments over a period of time, but it does not face an insurmountable crisis requiring major structural changes. Privatization, on the other hand, will unravel Social Security’s important insurance protections, force huge cuts in benefits, increase risks to retirees, and force the Treasury to borrow trillions of dollars to fund the transition to the privatized plan. Social Security has been providing Americans a secure retirement for 89 years. With sensible action it can continue to provide that security for decades to come.
The National Committee is a nonprofit, nonpartisan organization that acts in the interests of its membership through advocacy, education, services, grassroots efforts and the leadership of the board of directors and professional staff. The work of the National Committee is directed toward developing a secure retirement for all Americans.
Government Relations and Policy, November 2024
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