The debate over Social Security and any proposed reforms to the system has generated much controversy, uncertainty, and outright anger.   Part of the problem is that many beliefs and doubts concerning Social Security are based on myths rather than facts.   Let’s look at some of the common myths regarding the Social Security System.

Myth # 1: There is no Social Security Trust Fund.    The good news is that there is a trust fund called the Old-Age Survivors Insurance and Disability Insurance Trust Fund that collects payroll taxes and invests the surplus.   The bad news is that there is not very much cash in the trust fund.   Three-quarters of the money collected in Social Security taxes is paid out in the form of benefits.   The surplus is then loaned to the federal government to pay for other programs.   In return for these loans, the trust fund gets special-issue, interest bearing Treasury bonds; however, the interest is not paid in cash but with more bonds.    Even though these bonds are backed by the full faith and credit of the US Government, there is so much money owed to the trust fund that when it comes time to redeem these bonds, the government will need to find other sources of cash by cutting spending, or by borrowing money from somewhere else or by raising taxes.

Myth #2: Congress doesn’t pay into Social Security, so it doesn’t care about fixing the crisis.    Before 1984, federal employees, including members of Congress, were not covered by Social Security.   Since then, all federal employees as well as members of Congress participate in Social Security.   The problem with fixing the system is politics.   No matter what reforms are suggested, some group gets upset.

Myth # 3: Age 65 was picked as the retirement age because when Social Security was started in the 1930s, most people did not live to the age of 65.    In 1935, men aged 30 had a life expectancy of 67 and women aged 30 had a life expectancy of 70.   Social Security’s creators picked 65 as being a reasonable retirement age and believed that the system could be self-sustaining if they chose that age.

More myths will be explored in Part 2 of this topic.