Are the Social Security payroll taxes you paid yours? Absolutely not.
Jeff Szymanski works in political communications at The Association of Mature American Citizens. He wrote this piece to explain a common misconception about Social Security payroll taxes.
Perhaps the biggest misunderstanding (but not the only one) when I taught my lesson on Social Security to high school students for fifteen years was that the Social Security payroll taxes deducted from their paychecks was being held for them in Washington only to be paid back to them when they retired. Of course nothing could be further from the truth. Social Security has never worked this way. It has always been an inter-generational transfer. I used to explain it this way to the students: you are paying for your grandparents now, and when you go to collect, your kids and grandkids will be paying your benefits. So, the myth of the safety deposit box with a label on the front with their name was dispelled.
This led to three more discussions within that same lecture, the first being how the benefits a worker will receive one day is indeed based on what one puts in. It is that fact that leads some to believe the payroll taxes deducted are “theirs”. I didn’t get into the nitty gritty details, except to note that the Social Security Administration uses the top 35 years of one’s income in calculating monthly retirement benefits and that an individual must have ten working years (40 quarters) to even be eligible to collect benefits.
Second, I discussed phrases people often utter like, “I’ll never get my money back” and/or “Politicians are stealing Social Security money for themselves.” Both are false and could easily take up a lecture or be an article in and of themselves. In short, workers get back everything they ever paid into the program plus a nominal rate of interest in about 5-7 years. It’s actually a decent deal. And, no politician has spent any of the surpluses that have accrued.
Third and lastly, of course, was the funding issue facing the program. I went through the very real demographic problem of people living longer and families having fewer children. I implored my students to understand that changes must be enacted by Congress and the President, no matter how politically tempting it always is to demonize any candidate or elected official who dares suggest reform. I suggested they try to educate their own parents and grandparents.
The latest news from the Social Security Trustees in 2018 is not good. The program is running a deficit in 2018 for the first time since 1982. The Trustees Report notes the program will be insolvent in 2034, meaning the program would only be able to pay about 79% of promised benefits. That equates to over 20% cuts across the board at that time for all beneficiaries. That is the price that will be paid, if you will, for decades of congressional inaction. This is all the reason action should occur before then, and the sooner, the less painful to current and future beneficiaries. Full promised benefits continue today and through 2034 only because past surpluses are being drawn down, similar to using a savings account to keep spending at current levels when income drops.
Since leaving the classroom in 2016, I now have the privilege of working for the Association of Mature American Citizens (AMAC), an organization dedicated to preserving and modernizing the Social Security program. AMAC has developed a bipartisan compromise bill, titled “The Social Security Guarantee Act,” which takes selected portions of bills introduced by Rep. Sam Johnson (R-TX) and Rep. John Larson (D-CT) and merges them with the Association’s original legislative framework to create the new Act. AMAC is resolute in its mission to get the attention of lawmakers in DC, meeting with a great many congressional offices and their legislative staffs over the past several years. Learn more about AMAC’s Social Security Guarantee here…