Romina Boccia
Romina Boccia

For nearly 90 years, a widespread misconception has shaped how Americans view Social Security. Many believe that their payroll taxes are saved in a trust fund, to be drawn down when they retire. But in reality, Social Security has never operated as a savings system. Instead, it functions as an income transfer program, where the taxes collected from today’s workers immediately fund the benefits for current retirees. This misconception about how Social Security works continues to distort the debate around its future.
Social Security was designed to transfer income, not to save it. The first recipient of Social Security, Ida May Fuller, perfectly illustrates this. Fuller paid less than $25 in Social Security taxes (about $500 today) before retiring in 1940. Her first check nearly matched what she had paid in, and over the next 35 years, she collected $23,000 in benefits—nearly 1,000 times what she contributed (or roughly $500,000 in today’s terms). This arrangement worked out great for earlier generations, but today’s workers aren’t so lucky. They are paying high taxes for a benefit that’s far lower than what they could earn if they invested the money in a balanced portfolio of stocks and bonds instead.
These issues are echoed in my new Cato paper, The Social Security Trust Fund Myth, which was published on November 13. The paper offers helpful analogies to explain how Social Security is financed, from illustrating its accounting realities in terms of a household budget to explaining the difference between real savings and IOUs and why IOUs in an intragovernmental “trust fund” provide no actual funding mechanism for paying future benefits.
The political narrative that fuels the trust fund myth has persisted since Social Security’s inception. In the 1930s, the idea of government assistance was unpopular, and policymakers needed a way to sell Social Security to a skeptical public.  » Read More
https://www.cato.org/blog/time-face-facts-about-social-security