Setting the Record Straight: is Social Security going “bankrupt?”

According to Pew Research Center, 18% of Americans are relying on social media as their primary source for news. This makes social media platforms the single largest news authority to the majority of the country.

But despite social media being our go-to for all things current events, most of us also know these sources often aren’t reliable.

So in this series, we’re taking a look at some of the most widespread beliefs circulating on social media platforms about Social Security. We want to check in with the experts to see if some of the most popular Social Security claims we see every day are based in fact or just plain fiction.

Today’s social media Social Security myth is brought to you by the letters M (for “misunderstanding”), U (for “uncareful language”), and P (for “possibly deliberate mischaracterization”):

Claim: Social Security is going bankrupt.

We’ve all heard this one.  And we’ve heard it for far longer than Social Security has been having immediate financial problems.

Social Security is going broke.  Social Security is running out.  Social Security will soon be bankrupt.

Luckily, talking about THIS issue is kind of our specialty, so we won’t have to do TOO much digging around to find where the facts end and the sensationalism begins.  We know the truth of this claim like the backs of our hands.

Let’s just answer this question right off the bat—then we can get into where this claim is coming from:

Is Social Security going bankrupt?  No.

Is Social Security going completely broke?  No.

Can Social Security totally run out of money?  No.  Not unless Congress makes serious changes to the way Social Security gets funded.

If the Social Security program and the vehicle that funds it never gets changed from where it is right now, beneficiaries WILL receive Social Security benefits.  Social Security has problems and those problems are severe, but bankrupt would imply there’s a point the program wouldn’t have any money to pay out, and that’s not possible.

But is there a point where Social Security could be so financially battered it may as well be broke from a beneficiary’s point of view?  Yes.  And that point isn’t that far away.

But let’s be TOTALLY clear on the question of Social Security’s ability to go completely bankrupt:

That can’t happen.  It won’t happen.  There will ALWAYS be SOMETHING in Social Security.

This belief is coming from a mixture of public pessimism and poor explanation of what’s actually happening to Social Security.  And while we can’t do much to ease the former problem—especially not after the year we’ve just had—we CAN walk you through how Social Security gets funded, why Social Security is under financial threat, and how that financial threat would actually affect seniors.

Social Security is not going bankrupt—it’s insolvent.  Insolvency is when a person or entity is unable to pay debts with incoming revenue.  This might sound a whole lot like bankruptcy, but you can be insolvent long before you declare bankruptcy.  Insolvency just means your income doesn’t keep up with your debts and you’re operating at a loss.

For a business or an individual, this would be pretty bad.  Insolvency would be the first steps on the path toward bankruptcy. 

But Social Security is a living program that will be adjusted to suit the realities of its income.  If we reach the point where there is nothing left in Social Security’s reserves—where it would be impossible to pay the full scheduled benefits of all retirees—the default reaction will be to cut benefits to all retirees such that Social Security’s income and “debts” are in balance again.

Now, we don’t want to downplay the impact that cut would have on retirees at all.  As things are today, if nothing is done to fix Social Security’s long-term solvency, we’re talking about a 25% cut to everyone’s benefits to get the program back in balance.

The average Social Security benefit is $18,170 per year.  Subjected to a 25% reduction, that amount would be about $13,628.  The federal poverty level for one person is $12,880 and $17,420 for couples.

As many as 40% of all seniors ONLY receive income from Social Security.  The reality is a 25% benefit cut would push nearly half of all retirees to or below the poverty line.  This cut would be absolutely devastating to the whole economy, but especially to older Americans.  For them, the program might as well be bankrupt if that happens—these retirees already struggle to make ends meet on their full benefits now.

Social Security is currently relying on surplus contributions taken in over the decades to pay retirees’ full benefits.  The Social Security Trustees recently estimated that surplus will be exhausted in 2034.

With the retired population’s benefits exceeding the contributions made by current workers, Social Security has had to rely on its rainy-day fund to meet the demand with no significant alterations to benefit amounts.  That’s what we’re talking about when we say Social Security is insolvent.

But because Social Security is funded by a dedicated payroll tax, what income it does make isn’t going to go away.  Unless we decide to stop collecting payroll taxes.  We may not be collecting enough payroll taxes to cover all future scheduled benefits, but if Congress allows Social Security to exhaust its reserves, benefits will still go out.  They just won’t be enough for many retirees to survive on.

So, is Social Security well on its way to a financial disaster?  Yes.  But that is NOT the same thing as being “broke” or “bankrupt.”  The reality of Social Security’s funding shortfall is being muddied by a mixture of our collective cynicism about Social Security and a failure by many to explain the matter succinctly.  Those of us trying to raise awareness about this problem often drop the ball when we need to be delicate with our words.

This is especially important since we’re trying to build support for creating a more stable Trust Fund.  When advocacy groups fall back on alarmist headlines and messaging (even when it’s being done to gather grassroots support for positive change), not only do casual readers get the wrong idea about what’s actually happening, but it can also have the OPPOSITE affect in the long term.  Why should the public care about saving a program that so many appear to be saying is going fully bankrupt?  Bankrupt means failing.  And a failing program isn’t a program we need.

In fact, this “bankruptcy” myth is being used by those who DO want to cut Social Security and DO want to see Social Security go away to perpetuate the claim the program doesn’t work.  That’s another reason we’ve seen this claim gain so much traction.

But we promise you Social Security is nowhere near failing.  It isn’t going to run out of money.  And its current financial situation is not at all indicative of how well the program works.  We have a number of legislative options to restore solvency—and some of them would actually EXPAND benefits while doing so.  Social Security’s financial health currently rests with Congress selecting a Social Security reform package in the next few years.  The sooner they do so, the more options we’ll have and the more time we’ll have to phase them in.

This myth is just that: a myth.  Anyone telling you Social Security is on the verge of bankruptcy isn’t telling you the whole story and certainly isn’t telling you an accurate one. 

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