Yes, you WILL get social security

We hear a lot about the doubts over the future of Social Security. Here are a few I've come across:

  • “Three-fourths of those 18 to 34 don't expect to get a Social Security check when they retire.” — USA Today
  • “My husband and I are both 28, and we laugh every time we hear [‘yes, you'll receive Social Security']. No, we won't receive Social Security, even though we've both been paying into it since we were teenagers…I can't think of one of my peers who expects Social Security to still be around when we're retirement age. Call us bitter.” — A comment to my last column (“When Will You Be Able to Retire?”)
  • “Six in 10 Americans who have not yet retired believe they will get no Social Security benefits when they retire, more pessimistic than at any time since Gallup began asking this question in 1989.” — Gallup
  • “According to one survey, 100% of people married to Robert Brokamp wish he would shave his head rather than try to pull off a comb-over.” — My wife

If you're among the doubters (of Social Security, not my hairdo), then listen up: The following paragraph is the most important group of words you'll ever hear regarding Social Security. It's key to understanding how the program works, and whether you'll get anything. Here it is:

Social Security is predominantly a pay-as-you-go program. Most of the payroll taxes that are collected from today's workers go into the checks of today's beneficiaries. Thus, as long as there are people working and paying payroll taxes, there will be money to pay Social Security benefits.

According to the most recent Social Security Trustees report, from 2037 to 2084 payroll taxes will be enough to cover 75% of projected benefits. That's not great, but that's not nothing, either.

People who think that they won't receive any Social Security benefits must believe one or all of the following three things:

  1. In the future, people won't work.
  2. In the future, the government won't collect payroll — a.k.a. FICA (Federal Insurance Contribution Act) — taxes. Currently, workers “contribute” 6.2% of their paychecks to the Social Security system, and their employers match with another 6.2%; the self-employed pay the whole 12.4%. Another 2.9% goes toward Medicare. As you know if you've looked at your paycheck, it's a separate withholding from income taxes. In fact, the majority of Americans pay more in FICA taxes than they do in income taxes.
  3. In the future, Social Security will be means-tested to such a degree that the “wealthy” (an arbitrary designation, to be sure) won't receive any benefits. Those who don't think they'll receive Social Security assume they'll be among these “wealthy.”

I don't think Nos. 1 and 2 are likely. No. 3 is possible. The program is already means-tested to a degree, since the percentage of income that is replaced by Social Security decreases as lifetime earnings increase. However, I think that if changes to the means-testing formula result in a group losing their benefits completely, it will be a small group — certainly not 60% to 75%, as the aforementioned surveys suggest. I find it very unlikely that a future Congress — elected by future citizens — will change the program in a way that the majority of people who pay FICA taxes won't get at least some benefits.

Those Crazy Trust Funds

For many years, the payroll taxes collected were more than needed to pay current benefits. The surplus went into the Social Security trust fund, which invested the money in special-issue U.S. Treasury bonds. However, this year — thanks to the stinky economy — benefits will exceed revenues. That's projected to temporarily reverse, but at some point in the middle of the next decade, the retirement of the baby boomers will cause benefits to exceed taxes. This is where the trust funds come in. They'll be sold to cover the shortfall.

In my opinion, this is the essence of questions about the future of Social Security: What, exactly, are we to make of these trust funds? Are they truly assets? Here are the two arguments:

  • Those who think that the Social Security system is essentially sound will point out that of course the trust funds are real assets. They're full of U.S. Treasuries, which are considered the safest investments in the world.
  • Those who think otherwise point out that since Treasuries are federal government debt, the trust funds contain just worthless pieces of paper with a note written on them that says, “Dear Uncle Sam: I owe you lots of money. Love, Uncle Sam.”

I have to admit, I haven't quite decided to which camp I belong. I'm inclined to go with the latter. After all, when, say, 2020 rolls around, and the Social Security Administration needs some money from the trust fund, it will take one of these special-issue Treasuries to Uncle Sam and want to exchange it for cash to be sent to retirees. Where will that cash come from? I almost think I need to see a spreadsheet or detailed flowchart or something to fully understand how all that will work. If you have suggestions for how to accurately think about the trust funds, I'm all ears.

For Now, Plan on Getting Less

That's enough talk about Social Security for now (assuming you're still reading). From a financial-planning perspective, I'll reiterate my advice from my last post. If you are in or near retirement, plan on getting your benefit. If you're younger, play it safe and plan on getting 25% to 75% of your projected benefit. But plan on getting something.

I'm sure you have your own thoughts and opinions about Social Security, and I encourage you to share them below. However, let me say this: Often, discussions following articles about Social Security turn into political brawls that degenerate into name-calling and general silliness. So please, all you right-wing nutjobs and left-wing commies, let's keep it civil. Stick to the topic of Social Security and the facts. And maybe advice for creating a sweet comb-over.

More about...Retirement, Economics

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Zack
Zack
9 years ago

Why not plan on receiving no social security benefits? That way, no matter what happens, you’ll be covered in retirement.

Michael
Michael
9 years ago

Wouldn’t there be a third way that we wouldn’t receive benefits? If we opt out of them in lieu of contributing to a private account? That’s one that Bush was proposing and I like more than what is there. I like the idea of having my own asset that grows and that I can pass onto my kids. I would be more than willing to pay 1/2 of my FICA as a “tax” to keep the current system afloat while I pay 5% into a retirement account in exchange for not receiving social security when I retire. I know that… Read more »

adam
adam
7 years ago
Reply to  Michael

I don’t believe I will get SS when I retire, yet somehow I don’t fall within your ‘one or all of 3 reasons’ categories. The reason why I feel that I won’t receive SS is this: When the baby boomers retire – which will be long before I do, the proportion of money going into SS vs money coming out of will be MUCH smaller than it is now. Currently, what isn’t payed out to retirees of SS is put towards mitigating our nation’s debt, and has since SS conception. Once this proportion flips, not only will there be not… Read more »

Miltiadis
Miltiadis
9 years ago

No, you WON’T get any social security.

Aging population, increased longevity, low birth rates, and low returns on treasury bonds are all against you getting any sort of benefits.

On a side note, the surveys mentioned ask people what they “believe”. Isn’t that a meaningless question here?

Dink
Dink
9 years ago

I don’t doubt that the younger working generation will receive some Social Security benefits when they reach retirement age, but the benefits now already leave people living hand-to-mouth. Take that down to 25%, consider inflation, and you might as well get nothing. It’s better to assume you’ll get nothing and plan your own retirement than rely on a faulty government. Republicans, Democrats, they’re both awful and concerned only with self-preservation for the next election cycle. No government will solve our financial problems, only we can.

Sorry Robert; I appreciate your positivity but I’m not convinced.

Adam Skinner
Adam Skinner
9 years ago
Sam
Sam
9 years ago

Social Security often devolves into a political discussion because there ARE distinct political forces in action that would prefer to destroy social security for various reasons. Some are positive, like wouldn’t you rather pay less in payroll taxes and invest your money yourself (i.e. control). Some are negative, in my mind, thinking of SS as welfare.

There are many working Americans in this country that will have little to no retirement savings if SS is destroyed. I personally don’t want to live in a country where we don’t care for our most vulnerable populations, the elderly, children, the sick, etc.

Antti-Juhani Kaijanaho
Antti-Juhani Kaijanaho
9 years ago

So far as I understand them (being European), the US Treasury bonds are fixed-term notes (rather like the reverse of fixed term deposits at a bank). You can’t go to the Treasury at a time of your own choosing and demand payment. The Treasury knows already when it issues a bond when and how much it will have to pay to redeem it and can plan accordingly (either to pay from the tax income or by issuing a replacement bond, thus extending the debt, which will only be a problem if the US finds itself in a sovereign debt crisis,… Read more »

Susan
Susan
9 years ago

Is it possible that social security payments will change to be a set amount, rather than an amount based on what you earned. The British system pays about 90 pounds ($135) per week no matter how much you paid in. A bit more for married people, but not double for sure. This way the poorest people receive an amount of money they can almost live on, whereas folk who earned more need to have saved more to maintain their quality of life. I’m not sure, but does this method result in everyone getting something, rather than everyone getting almost nothing… Read more »

CB
CB
9 years ago

I don’t think the point of the article is to encourage people to count on SS to provide for their retirement. But to assume that you will receive nothing from SS is rather ridiculous. Now that doesn’t mean that I will set up my retirement savings plans assuming that SS will be what it is today. At 26, I’m going to save what I can and if I get what the retirement calaculators tell me I would get from SS, then that’s great. If not, I’ll be covered. There’s a big difference between assuming SS won’t exist at all and… Read more »

Gumnos
Gumnos
9 years ago

It’s not that we won’t get *any*, but getting $0.25-0.75 on the dollar (a high estimate, IMHO) makes most of us think we would have been better-off depositing that 9.3% (15.3% for us self-employed) of our income in a hole-in-the-ground. Heck, if you want to give me 15.3% of your income and get 25% of it back and call it a good deal, LET’S DO IT! 🙂

-gumnos

MikeTheRed
MikeTheRed
9 years ago

I think it’s actually a great thing that younger citizens assume they won’t be getting Social Security when they retire. We should encourage this attitude at every turn!

Why?

Because if you assume you’re not getting a cent from Uncle Sam in retirement, you’re forced to take on 100% of the responsibility for your retirement.

I’m funding my 401(k) and Roth IRA as if they’re going to be my only income sources in retirement. If I get SS, that’s just icing on the cake, but if I don’t, it won’t hurt at all.

jg
jg
9 years ago

Like many my age (28), I say I assume no SS. If I stop and think a bit, what I’m really saying isn’t that I assume it won’t be around (although I’m not convinced), it’s that I do NOT make the assumption it WILL be when planning – after all, most people seem to agree it won’t be anything like it is now. (However, I refuse to think of it as a “nice bonus,” after I will presumably have paid for other people’s for 40-50 years.) Also, I, like many people on this site, am in pretty good financial state… Read more »

Nicole
Nicole
9 years ago

What is probably going to happen is that Early Retirement age will stay at 62 (so that the people who really need early Social Security will have it), and the Normal Retirement Age will increase and the increase will be indexed to average lifespan, specifically life expectancy based on some older age like 62. There will probably be some tinkering on earnings rules, making it easier to collect SS while working (they’ve already done some of this), and some tinkering on tax laws increasing the earnings cap. The sooner we make changes, the less painful they will be. If we… Read more »

Suzanne
Suzanne
9 years ago

I don’t believe for one second that voters will allow social security to be eliminated or even greatly reduced. There are far too many voters who rely on it to think they’ll just kiss their own future goodbye.

rick@rickety
9 years ago

This is an excellent article. The main point to remember is that as long as the government can sell treasuries, then the Social Security will be funded. To fund at a 100% rate in later years an increase of 1.1% in FICA needs to happen I am told. If you think you will not get Social Security you are really saying that the U.S. will not be able to sell treasuries. There goes the dollar and in comes anarchy. So plan accordingly with Guns, Gold, and Groceries. However, while it is prudent to plan for hard times, there is too… Read more »

Chris Caton
Chris Caton
9 years ago

I’m one of those 20-somethings who doesn’t think I’ll be getting Social Security when I retire. I don’t think Social Security will disappear because it will go bankrupt. I think it will disappear because it’s a top-heavy Ponzi scheme that will become a target of fiscal conservatives in coming decades. In short, it’s not that I think it will become insolvent. It’s that I think the program will be canceled. Social Security’s future is sufficiently uncertain as to be discounted in any future financial planning. It’d be irresponsible of me to assume I’ll be getting a free government handout in… Read more »

Blaise Pascal
Blaise Pascal
9 years ago

A few years ago I looked into the SS Trust Funds to see how they worked. We don’t have to wait until 2020 for the SSA to start cashing in the trust fund. It’s happening regularly now. Unlike regular Treasury Notes, the trust fund notes are payable-on-demand. Also, the SSA maintains a daily cash balance of $0. Every day, it receives some money from payees, and every day it sends checks to recipients. If they receive more money than the send out, they buy treasury notes with the daily surplus. If they send out more than they receive, they cash… Read more »

Rosa
Rosa
9 years ago

THANK YOU! The lie that Social Security is going under does a huge disservice to people my age, who don’t see it as a potential loss when privatization is brought up, and don’t fight back. That said, it probably is smart to plan as if SS (and more importantly, if you have a private pension or your parents do, assume it’s going to go belly up – a lot of them have) won’t be around. Then if you’re surpised, you’ll have more money than you need, not less. We hit the SS deduction cap last year and personally I think… Read more »

Andrew
Andrew
9 years ago

Arn’t you missing an option: Revolution.

I think there’s a non-zero chance, either the left-wing commies or the right-wing nut jobs could overthrow the current governmental system, and the social-security fund will be raided to pay for it.

for now, I’ll just write off FICA payments as a moral charitable contribution to our nations elderly 🙂

Daniel
Daniel
9 years ago

THANK YOU! It’s about time that someone important wrote about this. I wrote about it a few weeks or months ago, and it seems like 75% of our benefits are pretty good, especially since that’s if nothing changes! There definitely will be changes over time, and whether they will have a positive impact or not, I’m not sure, but the thought that we’ll get no benefit is ridiculous. One thing I will say is that planning for no or little benefit could be great because come your 50s or 60s, you’ll realize that it will be around and you’ll be… Read more »

TG
TG
9 years ago

You miss the main problem with social security. If it was truly a pay-as-you-go program, it would be fine. Unfortunately, the social security fund is used to fund a whole variety of programs in the government. Additionally, people who never work, and therefore never pay into social security, are entitled to social security benefits. This is why 2010 is the first year in which social security payouts will exceed what social security takes in (see http://www.nytimes.com/2010/03/25/business/economy/25social.html). This is simple math, and to assume that more money will somehow magically appear in the social security fund by future workers is as… Read more »

Cindy
Cindy
9 years ago

Nice to see that someone has that much faith in the continuity of our government programs and the birth rate. I don’t think the system can continue to support more old people on the backs of fewer workers. I’m making other plans. Trusting government is silly and naive.

The Civil Commentator (Tim)
The Civil Commentator (Tim)
9 years ago

Robert, I appreciate your optimism; but there are plenty of reasons no to be. The one I want to focus on is this: there are plenty of taxes that people continue to pay the revenue from which no longer funds the program or project for which it was created. I don’t know about you, but if my debts were 4-5 times the amount that I earn every year, I would begin to cut back and start “making do”. I don’t see the government making plans for a balanced budget anytime soon. Not only that, but…OK, I’ll stop there to honor… Read more »

Cindy
Cindy
9 years ago

BTW, please forgive me for calling you silly. That’s not fair. Naive, though. Pie-eyed optimist, maybe?

james
james
9 years ago

The supreme court has already ruled that citizens who have paid in to social security are not entitled to receive benefits. Just because we are currently paying in does not mean it will later pay out. It has been shown time and time again that social security is the WORST retirement investment everyone makes. We could take that money and invest it in basically any other way and come out ahead. So I for one would be willing to give up my existing contributions if the government were to stop garnishing my wages and allow me to properly invest.

Chad
Chad
9 years ago

I’m dumbfounded – future credibility fail.
Why would someone stake their credibility on the future of SS?

JonasAberg
JonasAberg
9 years ago

Well, over here in Finland there is a push to raise the retirement age. It is possible that down the line, the retirement age will be 70 or even higher, which means you won’t get any social security benefits before you’re just about to keel over 😉 It is also possible that future generations will be a lot smaller and government expenses will be a lot higher, lowering the amount you get significantly. I don’t believe I won’t get ANY money at all but I do believe the future is very uncertain and that there will be a lot less… Read more »

CF
CF
9 years ago

I’m not expecting this post to garner much sympathy, and it really shouldn’t because I’m very fortunate, but I do want to give the perspective of a top wage-earner on this. I am a real liberal, by the way — I would gladly give over tons more of my money in taxes to pay for a decent education for children, or better public housing for the poor, and access to decent medical care for those who need it. But I do get a little bit turned off by some of the social security rhetoric against the “rich”. I currently pay… Read more »

DreamChaser57
DreamChaser57
9 years ago

@ Poster #15 (Ricky) -you certainly failed to heed the warning in the post to not devalue and polarize the commentary with political posturing. This country has spent a trillion dollars on the Iraq occupation/war – you suppose that happened since January 2009 – that’s humorous. Somehow it is abhorrent to invest in our own people and economy-in terms of healthcare, education, and infrastructure. I have digressed. I like to think that I have an “icing on the cake” Social Security mentality -but the harsh reality is that I have not saved aggressively enough. Life is so short and fragile… Read more »

Everyday Tips
Everyday Tips
9 years ago

I am planning to NOT get any social security, just to be safe. I admit I do not know all the intricacies of social security, but I do know that many predict the fund with be plain bankrupt. However, I do get your point that people will always be working, and that a reduced benefit is more likely.

I don’t trust the government to take care of me, so I plan on taking care of myself. However, I will be angry if I don’t receive what I contributed.

Amber @ Blonde & Balanced
Amber @ Blonde & Balanced
9 years ago

HA! Great article, Robert! I loved this – informative, yet funny.

I don’t expect to get any social security, so I’m planning my retirement without it, so anything I did get would be a bonus. I agree with you that everyone will probably get some, but the number is so blurry and unpredicatible, I’m taking the easy way out and just not counting on it. 🙂

Thanks for making SS an entertaining topic – a difficult feat to accomplish! 🙂

uncertain algorithm
uncertain algorithm
9 years ago

I concur with many of the posters above: if social security is still around when I retire, I will consider it an additional bonus and maybe take a few extra vacations with the money. But, for now, I will plan as I won’t receive any social security money after all. I think that for my generation that is wiser.

Besides, one point this post misses is the fact that tax rates will be much, much higher in the future, so even if people try to retire to a “low” tax bracket, it will still be highly taxed.

Peggy
Peggy
9 years ago

If Social Security’s going to be there when I retire, why has the media been telling me for twenty years that it’s going to go bust before I reach retirement age? My generation has actually been -trained- to not expect Social Security benefits. Surely there must be a reason for that. So we save for retirement via IRAs and 401ks, and now some high up in government are starting to eye those as a new, untapped source of tax revenue, to shore up a chronically unbalanced budget. The health care reform may help save Social Security, for a while, as… Read more »

MDP
MDP
9 years ago

I certainly don’t take SS distribution estimates into account in my personal planning, which I suppose is mathematically the same as assuming I won’t receive any benefits, but that’s different from “believing I will get no Social Security benefits” – there are *way* too many economic and political variables for me to make any sort of guess as to what will be going on in 40 years. And there’s little, if anything, I could do about it anyway. If I get benefits I don’t expect, then it’s not like I’ll regret having saved “extra.” And if I don’t, I’m comfortable… Read more »

cheapcookies
cheapcookies
9 years ago

“as long as there are people working and paying payroll taxes, there will be money to pay” If there is any one thing history teaches us, it is that it will repeat itself. Apply this to the history of Ponzi schemes. Sooner or later, it will break. I’m 8 years away from full SS benefits but I’m not relying or betting it will be there (I’m hoping for it as a supplement, which btw is what is was supposed to be anyway). I don’t care about what I paid in; I am intelligent enough to understand that I am responsible… Read more »

Kent
Kent
9 years ago

I usually am left disappointed when I “expect” to get anything from the government. Except that is when I “expect” to be disappointed, then my expectations are usually met.

SF_UK
SF_UK
9 years ago

Just to correct an earlier poster, the equivalent in the UK is National Insurance, not National Security. And there is an element of contributions-based income. At retirement age (which is in the process of changing), you get a state pension which is dependent on a number of things, including whether you are married, and crucially how many years of qualifying national insurance contributions you have. There are ways round this – e.g. people receiving carers allowance (for full-time unpaid carers) are treated as though they are paying NI. You need (iirc) 30 years of contributions to get the “full” state… Read more »

lostAnnfound
lostAnnfound
9 years ago

Robert, I agree with your wife. Forget the combover. Bald is beautiful. I think my husband looks sexier now shaved bald than he did 20+ years ago with lots of hair.

Antti-Juhani Kaijanaho
Antti-Juhani Kaijanaho
9 years ago

“Blaise Pascal” at 17 appears to be correct, and I was wrong. The US social security trust funds do not, in general, hold fixed-term Treasury notes but instead exist as demand deposits with the Treasury. However, while this changes the mechanics and the accounting, it does not change the fundamentals. The trust funds are a liability of the Treasury, and when the funds are net liquidated, the Treasury will, in normal times, be able to convert this liability into general debt (regular Treasury notes) if it does not wish to cover it from tax income. In an abnormal market in… Read more »

Kim
Kim
9 years ago

Based on this article, there is a huge amount of trust that the government will give social security money back to the people and not “re-purpose” it and spend it on something else.

I agree with the people who say we’re better off planning for the worst. If we get social security, great. If not, I’m covered.

Theodore Van Rooy
Theodore Van Rooy
9 years ago

It’s naive to think that in the face of contributing a few $100k and only receiving back 50-75% of that back that the Millenial generation (and those to follow) will not rise up on their egalitarian and meritocratic values in protest for reform and the full amount due them.

I for one wont let our parents (Baby Boom and GenX) generation get away with their negligence…

Rob Bennett
Rob Bennett
9 years ago

let’s keep it civil. Stick to the topic of Social Security and the facts.

The facts are that the numbers don’t add up.

The civil thing is to fix a system that over time has become corrupt rather than to make excuses for the corruption and thereby create an environment in which it can continue.

Ducking these issues has not been working out so well for us lately. I am of the sincere belief that the time has come to take a more serious approach.

Rob

Veritroth
Veritroth
9 years ago

One problem that most people are not aware of has to do with the special issue bonds that are created with the SS surplus. They are not actually bonds; if they were you could sell them anywhere (ie on the open market). However, they do not work like that. They can only be sold to the Treasury, and since the Treasury has no money, they will have to issue treasuries bonds for the exact same amount. The potential problem with this is that we have no idea what the market will demand for an interest rate on those treasuries. It’s… Read more »

Raghu Bilhana
Raghu Bilhana
9 years ago

Uncle Sam would have to give that money to the Social security administration by raising taxes on the employees of that day. I dont see any other option.

Low taxes cannot sustain for long, can they?

Nate Baxley
Nate Baxley
9 years ago

The sad thing is that those people that think it won’t be around, are still happily paying a large chunk of their income to the government and expecting no return. If you don’t think it will be around, petition your representatives to let you stop paying! Don’t be a dog and role over.

Scott
Scott
9 years ago

The very first commenter, Zack, had it right. Plan your future thinking that you will not get social security, then you will be covered regardless of what happens. There are a ton of resources out there now for people to learn about investing and setting up IRA’s.

Investing is some shape or form for retirement is your best option. Especially if social security is limited, you’ll have additional income.

Pirate Jo
Pirate Jo
9 years ago

Let’s say my savings account owes you $10,000. The savings account is empty, but my checking account owes my savings account $10,000. Therefore you think there is a trust fund which will pay you $10,000. But the fact is, my checking account is empty, and I am living so far beyond my means that half of my annual spending is funded by borrowing, to the point that soon the interest on my debt will consume the biggest portion of my income. Are you going to get your $10,000? Shake your tiny fist and demand to get back what you paid… Read more »

dak9779
dak9779
9 years ago

COLA…ever hear of it? The government sets it to what they deem acceptable. If inflation rises and the cost of living rises higher and faster than the COLA, then YES…people will be in a losing investment with social security. Socialism SUCKS!

dak9779
dak9779
9 years ago

Plus…because of the massive baby boomer generation, they will HAVE to raise the retirement age above 65. (sound like Greece?)

Pirate Jo
Pirate Jo
9 years ago

“The sad thing is that those people that think it won’t be around, are still happily paying a large chunk of their income to the government and expecting no return.” Happily? HAPPILY? What what WHAT??? “If you don’t think it will be around, petition your representatives to let you stop paying! Don’t be a dog and role over.” Or spit into the wind, for all the good that will do you. Many people have tried to stabilize the system, but every time, the current crop of bluehairs start screaming. And for quite a few decades now, there have always been… Read more »

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