January 15, 2014

Social Security: Common Myths & Hard Facts

Quoting Paul Norr for Financial Planning.com, Dec. 4, 2013:
“The amount of misinformation and outright distortion about the workings of Social Security is stunning. In 2000, Al Gore campaigned to create a “lockbox” to supposedly protect the program assets. In 2012, Rick Perry called SS a Ponzi scheme. There are regular rants from political leaders about the trust fund having nothing but IOUs, or being broke, or how the federal government is raiding it. Some hard facts are in order.”
“The SS trust fund is the basic account through which the entire program is administered. Throughout the 1960s and 70s the trust fund was not a hot topic, expenses closely tracked income and the trust fund balance hovered from $20 million to $35 million. With an eye toward the huge baby boomer generation retiring in the early 21st century, landmark 1983 legislation shored up the system by raising taxes, boosting inflows and setting the stage to dramatically grow the trust fund. Today that trust fund has over $2.5 trillion in assets.”
“Like any manager of a large fund, the SS Administration would be foolish to leave the assets idle since inflation would eat up a significant portion of the value. Congress decided that the program could use only one investment option, U.S. Treasury Securities which, last I checked, were still considered one of the safest, lowest-risk investments in the world. In fiscal 2012, the trust fund investments in US Treasury securities paid over 4% interest and generated over $100 billion in interest. So yes, the trust fund is full of IOUs. They are called bonds, and are generally considered a prudent investment.”
“A more recent SS scare was that just this last year the system was running out of money. What was really happening was that for the first time yearly benefit payments exceeded yearly income from payroll taxes. What was not commonly understood was that total system income was still exceeding expenses. In fact, in fiscal 2012, although benefit payments exceeded tax payments by over $130 million the trust fund balance still grew by $94 million once income from interest, tax receipts and other sources was included.”
Read more details about SS at: http://www.financial-planning.com/blogs/social-security-common-myths-hard-facts-2687506-1.html

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