Posted 6 months ago on Oct. 25, 2012, 8:28 p.m. EST by Middleaged
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Don't know if we are allowed to post this here. I will copy the Best Point here.
5 Huge Myths About Social Security By Ilan Moscovitz | More Articles October 15, 2012 | Comments (181)
Social Security has been providing Americans with old age, disability, and widow and orphan insurance for as many as 77 years. But like so many of today's crucial financial topics, it's also shrouded in myth. Here are five big ones.
Myth No. 1: Social Security is going bankrupt The biggest misunderstanding out there relates to Social Security's financial challenges. (A Google search for "Social Security bankruptcy" turned up 50 million hits.) But the fact is that Social Security isn't going bankrupt, nor is bankruptcy really possible as the system is currently set up.
Here's the source of the confusion: Historically, Social Security has collected more than it paid out. The extra money built up in a trust fund that collects interest. But due to demographic and economic changes (more on that in a minute), it's expected that insurance payments will begin to exceed income in 2021. Around 2033, the fund will run out.
But even then, the revenue Social Security collects each year would still be enough to pay out about three-quarters of scheduled benefits as far as the eye can see.
Source: Social Security Administration.
In short, to say Social Security is going bankrupt, you have to ignore its revenues. But by such a weird standard -- ignoring revenues and seeing how long it would take expenses to drive tangible net assets to zero -- the average member of the Dow would go "bankrupt" in just under three months. (Fascinating bonus trivia: At nine months, Microsoft would survive the longest, while United Technologies wouldn't last two hours, and eight Dow blue chips – DuPont, Boeing, IBM, Pfizer, Hewlett-Packard, Procter & Gamble, AT&T, and Verizon -- would already be bankrupt. Again, that's because ignoring revenues doesn't make sense.)
Of course, doing nothing would mean that Social Security won't be able to meet its full obligations two decades from now. But it's not going bankrupt.
Myth No. 2: Meeting Social Security's future shortfall is really hard We only need to come up with about 0.9% of GDP in order to make Social Security's revenues match up with its expenses for the next 75 years. To put that into perspective, 0.9% is close to the cost of unemployment insurance, the high-end Bush tax cuts, or one-fifth of the Defense budget. That's not insignificant, but it's hardly apocalyptic.