64% of Americans are Making a Fundamental Mistake on Social Security

Social Security is one of the most important benefit programs in the United States because of the positive impact it has had on keeping seniors out of poverty and improving their quality of life.  It’s also a broadly popular program, with 79% of Americans opposing reducing it in any way, according to a Pew poll.

Despite these facts, however, many Americans are operating under a major misconception about Social Security. It’s a belief that it’s important to dispel, because having incorrect information on this issue could adversely impact retirement planning. 

This is the major mistake Americans are making on Social Security

The big mistake Americans are making when it comes to Social Security has to do with what will happen if the trust fund runs dry. 

Unfortunately, there is a very real risk that Social Security’s trust fund could run out of money as soon as 2032. The trust fund is used to help pay benefits for seniors, but funds are lacking as the workforce ages, and not enough money is being paid into the system to fund all the outflows. 

It’s the outcome of the trust fund running dry that has so many Americans confused, though. Research from Cornell University revealed that 64% of people who see a graph of the trust fund’s projected depletion assume that benefits will disappear entirely. They believe that when the trust fund is empty, no one will get a dime of Social Security. 

This simply isn’t the case, though. If the trust fund runs out of money, Social Security will still have revenue coming into the program. And, benefits can still be paid out of this money that is being collected. The revenue will come from both current workers who pay payroll taxes, as well as from taxes collected on the Social Security benefits of existing retirees.

Depending on the projections, typically, the revenue coming in would be enough to fund around 75% of promised benefits. So, while an automatic cut would be necessary if the money in the trust fund was 100% gone, the situation is not nearly as dire as benefits going to zero. 

The Cornell researchers found that people were more aware of this reality and less likely to assume benefits would disappear entirely if they saw a graph showing a flow of income and costs instead of a graph showing the trust fund vanishing. Just 56% thought benefits would stop when they were presented with this reality. And, when reminded of the fact that payroll taxes would still be paid, the error rate on the outcome of an empty trust fund dropped to 40%.

Why does this misconception matter?

So, why does it matter if Americans are wrong about what happens when the trust fund runs out? There are actually a bunch of reasons why this is important. Specifically:

• Some Americans claim benefits early, which shrinks their checks, because they fear benefits will stop and figure they need to grab the money while they can. 
• A mistaken belief about the impact of an empty trust fund shapes people’s support of the benefits program, as well as their willingness to embrace changes that could shore up its finances. 

For all of these reasons, it’s important that those who are sounding the alarm about the emptying of the trust fund do so in a responsible way.

While it would certainly be a problem if there was no more money in it, it wouldn’t be the tragedy many fear — and Americans need to know that so they can make informed choices in their retirement planning process.