The biggest misconception about social security is that it's some kind of savings account where you put money in and you get it back when you retire. It's not even much like a retirement account, an IRA or a 401(k), where you do exactly that. The money that is deducted from your paycheck isn't in a vault somewhere with your name on it, waiting patiently for you to retire. It is helpful to think of Social Security, not as a retirement account, but as an insurance policy, with your payroll contributions similar to an insurance premium. Furthermore, the insurance that it is similar to isn't life insurance, but more like auto or medical insurance. It's plausible that you may never make a claim on your auto insurance policy. You may go your whole life and never have an accident. Where does all that money go? You don't get it back at some point if you decide to sell your car. No, your premiums go toward paying out the claims of people who do have accidents. (And paying the salaries of insurance company employees of course) Social Security is very much like that. While you, as a non-retired worker, are paying payroll taxes with every paycheck, there are people who are collecting Social Security retirement benefits. Their benefits aren't being paid out from an account with their names on it, but from the money that you are contributing now.
What about the people who die before they can start collecting benefits? Where does that money go? It doesn't go anywhere, because it wasn't there to begin with. All the payments that the unlucky person who died young made had already been paid out to retirees when he was alive and still working. He can't put all the payroll taxes he paid over his lifetime into his will for his family to inherit. (Spouses and sometimes children of deceased persons who would have been eligible for benefits can claim benefits based on the deceased's earnings record, this is different than treating the payroll contributions themselves as an asset which can be passed on in a will or otherwise transferred)
Another popular misconception is that the looming insolvency of the Social Security Trust Fund is due to the fund being "stolen from" by Congress, presidents, or both. The Social Security Trust Fund is not a bank account, or a Scrooge McDuck-like vault full of cash. What it is is a way of accounting for the annual surpluses. The Trust Fund is not the money that you and every other wage earner contributes. What it is, is the difference between what is collected by way of payroll taxes and what is paid out as benefits. Until very recently there was always more collected than what was paid out. So, what do you do with that money? You could put it in a savings account. But when money goes into a bank account it isn't physically in the bank, the bank uses that cash to loan money to businesses and individuals. The money that an individual or business has in the bank is only there on paper, you can get it out when you need it, but it's actually being used by the bank and they're profiting off its use. What the US government does, rather than putting the Social Security Trust Fund in a bank, or investing it, is lend the money to itself. By law, the annual surplus is invested in US Treasury bills that earn interest. This way, rather than leaving the collected cash in the hands of a third party, who can profit off that cash, the Social Security Administration holds Treasury bills, while the government can utilize the cash it receives from the purchase of the Treasury bills. Neither Congress nor any president has "stolen" from the Social Security Trust Fund. The money is there in the same way that your money in a bank is there, even though it may have been loaned out to a local business or homeowner. So, why do we hear about the Trust Fund becoming insolvent?
Very recently (in may have been this very year) the payouts for benefits exceeded the funds collected by way of payroll taxes. Therefore the surplus will not increase as it did in the past. The Trust Fund balance still is not decreasing (yet) because of interest payments on the Treasury bills from the general fund to the Trust Fund. Going forward, the difference between collections and benefits will need to be paid for by cashing in the Treasury bills that the Trust Fund holds. Eventually, possibly as soon as 2034, the balance in the Trust Fund will be depleted to the extent that there will only be enough income from payroll taxes to fund around 75% of benefit payouts. What will happen? No one really knows. Possible solutions include increasing the retirement age, or raising the payroll tax percentage; possibly taxing a greater proportion of benefits.
Yes, there are problems on the horizon for Social Security, but the reasons are somewhat more complex than Facebook memes suggest.
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