Social Security Myths: Separating Fact from Fiction

Back in the day—the 1900s, as my children like to call it—we accountants used to joke about "barbershop CPAs." A client would come into the office or call asking about advice they had picked up at the barbershop. For example: "They were telling me the IRS can’t tax this," or "They said we’re going to a flat tax."

You couldn’t predict what they might come up with. I’m always amazed that they seem to trust the barbershop cronies more than their accountant.

Today, the barbershop CPAs have largely been replaced by social media advisors. While I don't use social media myself, many of my clients do. They often bring in articles and social media posts and ask me to verify their accuracy.

They'll often say something like, "Oh, I know it's true—my son saw it on the internet." Some of the claims are so far from the truth that they remind me why I avoid social media altogether.

Bob Jennings operates a continuing education company for accountants and tax preparers. I have used his educational materials for many years. While he is a very entertaining speaker, he is also known for his thorough research and his commitment to presenting the facts as they truly are.

Several years ago, Mr. Jennings wrote an article about Social Security. I contacted him and asked for permission to share his research and explanations in this article, and he graciously agreed.

I have taken his article, originally written for accounting professionals, and simplified some of the language so that readers who are not familiar with the terminology often used by accountants, financial institutions can more easily understand the try discussion.

Before we get started, it is important to understand that this article discusses Social Security retirement and related benefits, which are not the same thing as SSI (Supplemental Security Income).

Mr. Jennings has studied the annual Social Security Trustees Report and written extensively on the subject.

With that in mind, here are some of the most common Social Security myths and the facts behind them, based on Mr. Jennings' research.

1. Myth: “Social Security is going broke. I want my money now.”

Fact: Social Security is facing financial challenges, but that is not the same thing as bankruptcy.

Social Security currently has reserve funds, combined with ongoing payroll tax collections, that are projected to pay full scheduled benefits for roughly another decade. Even after those reserves are depleted, payroll taxes collected from workers would still be sufficient to pay approximately 80% of scheduled benefits under current projections.

Social Security is not expected to disappear. The real question is how Congress will address the funding gap before it becomes more critical.

One possible solution would be to increase the amount of wages subject to Social Security tax. However, that raises another question: if higher-income workers continue paying more into the system, should their future benefits also increase?

2. Myth: “President Trump wants to eliminate Social Security.”

Fact: There is no evidence that President Trump has proposed eliminating Social Security.

Whether one supports or opposes him politically, he has repeatedly stated that he does not want to eliminate Social Security benefits. Some people confuse discussions about reducing fraud, waste, or administrative inefficiencies with reducing benefits themselves, but those are different issues.

3. Myth: “We need to stop illegal immigrants from collecting Social Security.”

Fact: Undocumented immigrants generally cannot receive Social Security retirement benefits.

To qualify for Social Security retirement benefits, a person must have a valid Social Security record and sufficient work credits. Individuals who are lawfully present in the United States may qualify for certain benefits if they meet the same requirements as everyone else.

Interestingly, some studies suggest that undocumented workers may actually strengthen Social Security’s finances because payroll taxes are often withheld from earnings that may never result in future benefit claims.

4. Myth: “Members of Congress need to pay into Social Security like the rest of us.”

Fact: Members of Congress have paid Social Security taxes since 1984.

Prior to 1984, many federal employees participated in separate retirement systems. Today, Members of Congress participate in and pay into Social Security just like most American workers.

5. Myth: “Congress has been stealing Social Security funds.”

Fact: Social Security surplus funds are invested in special U.S. Treasury securities as required by law.

Think of it like a bank loan. When Social Security collects more money than it currently needs to pay benefits, those surplus funds are invested in Treasury securities. The federal government uses the borrowed funds, but it remains legally obligated to repay Social Security with interest.

Whether that system is ideal is open to debate, but it is not stealing money from Social Security.

6. Myth: “I’ll never get back what I paid in.”

Fact: Most retirees receive substantially more in lifetime benefits than they paid into the system.

Many people focus only on retirement benefits and overlook the disability, survivor, and dependent benefits that Social Security also provides.

For example, Social Security may provide benefits to a disabled worker, a surviving spouse, or dependent children. When these protections are considered, the value of Social Security is often much greater than many people realize.

7. Myth: “Democrats” or “President Clinton” made Social Security benefits taxable.

Fact: Social Security benefits first became taxable under legislation signed by President Reagan in 1983, effective for 1984.

This was part of a bipartisan effort to strengthen Social Security’s finances. Regardless of political affiliation, it is simply inaccurate to blame one political party or president for making Social Security benefits taxable.

8. Myth: “President Johnson stole Social Security funds.”

Fact: This claim confuses accounting treatment with actually spending Social Security funds.

President Johnson included Social Security trust funds in the federal government’s consolidated financial reporting. However, this did not mean he took Social Security funds away from beneficiaries.

A simple example would be parents listing a child’s savings account on a family financial statement. The money still belongs to the child even though it appears in the larger financial picture.

9. Myth: “President Trump made Social Security non-taxable.”

Fact: President Trump supported making Social Security benefits tax-free, but Congress did not pass a law eliminating the tax.

Instead, many taxpayers age 65 and older now receive an increased deduction. Social Security benefits may still be taxable under current law. Taxes collected on Social Security benefits are credited back to the Social Security and Medicare trust funds.

Final Thought

Whether the advice comes from a barbershop or a social media post, it is always wise to verify the facts before accepting them as truth. Social Security is complicated enough on its own. Many of the claims circulating today contain a grain of truth, but they are often mixed with exaggeration, misunderstanding, or incomplete information.

Hopefully this article has cleared up some of the rumors and answered a few questions along the way.

Until next time,

Carlos