Social Security

These 7 Social Security myths just aren’t true, no matter how often you hear them – MarketWatch 🧐 YOU DO NOT HAVE AN EARNED RIGHT TO SOCIAL SECURITY

I have written about the myths surrounding Social Security many times, often to be frustrated when people don’t believe me or perpetuate false information. Politicians and biased advocates don’t help the situation either. I find this myth especially important for Americans to understand and I urge you to read the full article on MarketWatch

Myth No. 6: Social Security benefits are an earned right This would be really nice. If it were true.

Unfortunately, Social Security payments are not guaranteed, and laws can be changed at any time that impact what you’ll receive in benefits. Some of the other myths on this list seem… well, a little ridiculous. But I don’t blame people for buying into this one. It seems logical, for one — but what’s more deceiving is the fact that the government has essentially encouraged the belief that Social Security benefits are guaranteed.

A 1936 pamphlet from the Social Security Administration specifically states the following: “The United States government will set up an account for you … The checks will come to you as a right.”

That sounds pretty rock solid, clear, and obvious to me. But it didn’t take long for the Supreme Court to step in and “clarify” this language for us.

In Helvering v. Davis, the Supreme Court’s language set the tone for the future. Here’s what they stated in the written opinion on the case: “The proceeds of both taxes are to be paid into the treasury like internal-revenue taxes generally, and are not earmarked in any way.”

That eliminated the idea of the separate, personal account that the Social Security pamphlet originally implied. And then, in Flemming v. Nestor, the Supreme Court doubled down to make it very clear what the government thought about our “right” to Social Security benefits:

“There has been a temptation throughout the program’s history for some people to suppose that their FICA payroll taxes entitle them to a benefit in a legal, contractual sense. That is to say, if a person makes FICA contributions over a number of years, Congress cannot, according to this reasoning, change the rules in such a way that deprives a contributor of a promised future benefit. Under this reasoning, benefits under Social Security could probably only be increased, never decreased, if the Act could be amended at all. Congress clearly had no such limitation in mind when crafting the law.”

If there was any doubt left about an individual’s “right” to a Social Security benefit, this court case should’ve banished it completely.

Source: These 7 Social Security myths just aren’t true, no matter how often you hear them – MarketWatch

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Categories: Social Security

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9 replies »

  1. Regarding Benefitjack’s bullet number 4 about members of Congress not paying into Social Security until 1984 but who may reap an undeserved amount due to the so-called zero years artificially inflating their monthly social security pension.

    The Windfall Elimination provision, started in 1983, eliminates the undeserved advantage.
    For such members of congress, and many others, mostly federal and state pensioners, the calculation reduces the percentage of the first $926 of average individual monthly earnings (AIME) from 90% to 40%. This reduction amounts to $463.00 a month from the individual’s social security check.

    This provision is not well known as it applies to about 2 or 3 % of all social security recipients. But I am in that small group.

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  2. These are not myths:

    1. Non-citizen, aliens DO collect Social Security Supplemental Security Income – if they meet certain requirements that went into effect 8/22/96, including, for example, if a child or parent were subjected to battery or extreme cruelty by a family member while in the United States.

    2. The federal government did spend all of the monies collected. I would say that was “raiding” the trust fund (borrowing all trust fund assets to pay for current government expenditures). He says: “… Had all those dollars been left in cash, the trust fund would be worth about two-thirds less and would have run dry much earlier than currently projected. …” But, if this were any other private sector retirement plan, investing 100% of trust fund assets in low interest rate debt instruments of the federal government would be a fiduciary breach.

    3. At current spend levels, Social Security trust funds will be exhausted, same as they were in 1983. Using the term “bankrupt” is disingenuous – no matter who uses it. Yes, Social Security is “pay as you go”, up until the 1983 changes where Congress approved new taxes and made benefit changes so that the spend rate would be less than the new, higher revenue rate. In 2026 (Medicare) and 2032 – 2034 (Social Security), Congress may approve new taxes, reduce benefits, or again perform a combination of the two. Bankrupt, no. Exhausted, yes!

    4. Members of Congress didn’t pay into the Social Security system prior to 1984. However, if they do pay in for at least 10 years, their benefit may be greater than others who paid much more in taxes because the years prior to 1984 when they did not pay in will be 0’s in their 35 year calculation. Because the highly progressive benefit formula provides a higher income replacement to those with a lower 35 year earnings average, members of Congress may receive benefits disproportionate to the taxes they did, and did not pay.

    5. You’ll never get back what you put in. That is true for a significant minority of workers, if you include all revenues and a reasonable investment rate of return. He lies when he says workers only pay half of the taxes – every economist in America would confirm that while the incidence of employment taxes are on the employer, the financial impact reduces the wages workers actually receive.

    6. Everyone in America has been told that they earned the right to receive the Social Security entitlement they were promised by Congress because they paid the required taxes. It is similar to the crap Democratic members of Congress are pushing regarding the dramatically underfunded multiemployer pension plans. Congress is trying to bail out those pension plans because they believe workers took less in wages in exchange for the promised pension benefit – even though the wage reduction and the contributions to the pension trust funds were never enough to fully fund the benefit promises. Sound familiar? Congress knew that the funding is inadequate, for Social Security and for multiemployer pension plans, and Congress has allowed it to continue for 85 years (Social Security) and 45 years (multiemployer plans).

    7. Everyone should CONSIDER delay filing for Social Security benefits until age 70. Yes, one of the major shortcomings of Social Security is that there is no requirement that participants receive the full value based on their earnings record – regardless of the day benefit payments commence.

    A little honesty would be nice, even when presenting so-called “myths”.

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    • I don’t see how you can compare investing the SS Trust in Treasury Bonds with funding a private pension. You are right about the fiduciary thing, but hardly apples to apples.

      I think the notion that wages would be higher without the SS taxes on the employer is fantasy. When did employers ever trim what they spend on “promised” benefits and give any of the savings back?

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    • Point 1. – Supplemental Security Income is administered by the Social Security Administration, but it is funded by income tax dollars, not FICA taxes.

      Point 5. – There is no guarantee that if employers did not have to pay FICA taxes on each worker, that they would include the savings in increased wages. I believe that most employers would not increase wages if the FICA tax were to end.

      Point 7. – To say that everyone should CONSIDER waiting until age 70 to start SS benefits, may or may not be a good thing for each family. No one knows how long they will live and I would rather have my SS income now while I can still travel and enjoy life, as we do not know what the future will bring. Since my wife never worked her spousal benefit check at age 62 brings our total monthly benefit to $100 above my FRA benefit amount and gives us $66,976, not counting COLAs from age 62 until FRA. It would take until age 76 (10 years ) to get the $66,976 in additional benefits from FRA. Taking SS benefits at 62, since I am no longer working and have a military pension, has allowed us to pay off thousands in credit card debt and save hundreds of dollars in interest payments. We are saving the government money by taking our SS benefit early, as we will receive about $66,000 less in lifetime benefits, if we live to age 85. My $100,000 tax free life insurance will give my wife a much better benefit than the increased SS check if we waited until FRA. Also, I have seen the bigger SS benefit check go to the nursing home when several family members could no longer live at home. Why would I care if the nursing home gets a bigger check? Sure if you do not need the money it may be right to wait until FRA or beyond before starting SS benefits, but each family has to decide when to start SS benefits and it is different for everyone. My dad waited until FRA and died in a car accident after just 11 months of SS checks.

      Everyone just looks at the FICA tax for retirement benefits, but it includes survivor benefits, disability and spousal benefits and I believe even with all its problems SS is the best program our government has come up with to keep retirees and their families out of poverty. If the politicians would just fix the coming shortage by adjusting benefits and increasing taxes over the next few years, it could continue to help fund retirement for US families for the next 80 years and beyond.

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  3. Mr. Quinn:

    I’ve read this MarketWatch piece, and others like it, before. And I generally agree that there are quite a few misunderstandings (mine included) regards Social Security. But I also detected a couple of what I think are very misleading flaws even within these sorts of clarifications of Social Security.

    Myths within the explanation of the Myths, as it were.

    1. On Myth 6 – the “Earned Right Myth”.
    I understand the author’s explanation, and the supporting (current) legal rulings, regarding the status of the Social Security. I’m also fully aware of the lack of actuarial soundness of the Social Security accountancy, as currently legislated.

    However, this author ends this section with: “The government can change the rules.”
    – Ostensibly by REDUCING benefits to only 76% of current promised levels, and thereby crushing the “earned right myth”. I had to chuckle a bit at that.

    My retort to him would be: “You are quite correct, the government CAN change the rules. But the very much larger reality is: The electorate can change the government.”
    I’ve been voting in elections since 1972, and I’ve seen it happen.

    Whether you label Social Security benefits an “earned right”, or a “promise”, or an “entitlement” is completely irrelevant. It is no myth. THE myth stated and implied by this author is that resolution of the accountancy problem will only be resolved via the expedient of reduced benefits to his calculated level of 76% of current promise. Well, before that happens, there are going to be lots of congress-critters who are going to have to find new work. Again, I’ve seen it happen.

    Which brings me to the very much larger myth I’ve seen implied and propagated in this particular piece and others: That the people of the U.S. somehow serve, and are at the mercy of, government. Now that’s a MYTH – and it just just cracks me up every time I detect it!

    2. On (actually, within) the author’s Myth 5.
    Again, while I understand the point the author is attempting to make with this section, he is using his own (very common) myth to do so. He states:

    “Remember that the total FICA tax is 15.3%, but as an employee, you only pay half of that (or 7.65%). Your employer pays the rest.”

    That’s not only a myth, it’s a lie. And an all too commonly used lie at that.

    The full amount of payroll tax/FICA – ALL 15.3% – is merely a mandated re-direction of earned employee income, with half of that re-directed employee income only being tax-deferred* for the employee. In short, the EMPLOYEE pays all of it from their income. There is no “The employer pays the other half”, from either a logical, legal or accountancy standpoint.

    *Perhaps not rising to the level of a “myth” regarding Social Security, but certainly a commonly held misunderstanding, is that Social Security benefits are somehow tax-free benefits. Wrong. It has come as quite a shock to quite a few retirees I know to discover that the merely tax-deferred nature of their FICA payments for all those working years “bites” them in retirement. Up to 85% of their SS “benefits” are treated as ordinary income by the current tax codes – in addition to the taxes levied on any other retirement income they might have. At both Federal and State level.

    This is an opinion piece, and I do appreciate the basic message – the U.S. Social Security accountancy system, as currently legislated, is actuarially unsound. I get it.

    But the Social Security system is not, and never was, a “promise” just made by the Federal Government to it’s citizens. It is, and always will be, a promise made by the citizens of the U.S. to its own retirees, seniors and disabled. And that’s no myth. We merely assigned the “administration” of that promise to the Federal Government. That those previous and current crop of Federal Government folks have bollixed up the accountancy comes as little surprise to me.
    Fear not, though. We’ll replace them if necessary, in order to fulfill the promise, or “earned right” if you prefer. Even if it takes diverting Federal expenditure from saving whales and polar bears which won’t even be born for another hundred years to do it.

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    • You are spot on with myth 5, the cost per employee is 15.3%. If you are self-employed, the tax is not split. My wife was working for an employer who wanted to pay her under the table. Besides being ilegal it would also have cheated her on medicare and social security by not “earning” enough qualifying quarters. In the end, she got a 1099 form and we paid the the full 15.3%

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    • The reduction to 76% is simply math under current law. Incoming taxes or will only be sufficient to pay that level of benefits because the trust will be depleted and there will be no interest income. It’s not an accountancy problem it’s a funding problem. Funding has not been maintained to cover liabilities. Of course you know that the 7.65% includes Medicare HI tax.

      The only reason SS is funded by a separate payroll tax was to creating the illusion that it was a funded insurance benefit to which people were “entitled” and under the theory it would make it more difficult for Congress to mess with the program. Unfortunately, that actually made Congress shy away from doing what was necessary and thus the mess we face today.

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      • Mr. Quinn:

        Points taken on the 76% being simple math under current law, and that a portion of the 15.3% payroll tax paid by employees is allocated/earmarked for Medicare rather than Social Security. Thank you for the clarification.

        That said, I’m not sure I agree completely with your perspectives and characterizations in the second paragraph. But then again, I’m not sure it matters. I suspect with your background you may have better background and experience in this area than I do, even though I have been both employee and employer myself in the past.

        Rather than debate that, I’d rather ask you what changes to the systems – both Medicare and Social Security – that you would either recommend or endorse to resolve the “mess we face today”. As BenefitJack commenter noted above, the system was adjusted in the early/mid 1980’s (Reagan administration) to postpone the actuarial problem. That adjustment entailed both an increase in payroll tax rates, and an increase in the benefit eligibility age. What would your recommended adjustments to the system be today?

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      • As far as SS goes, the pending Social Security 2100 legislation is a good start. You can search this blog for info on it. It is a reasonable balance of changes. Beyond that it seems to me that we need to keep the payroll tax aligned with the actuarial needs of the program to keep it sustainable, even if that means annual adjustments. When it comes to Medicare that’s more complicated because it’s so integrated with the general health care system. However, I do think we are headed in the future to some form of universal program which may take ten or more years.

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