A lot of investors come to the site, and so do young adults seeking financial advice—a group that tends to believe that Social Security won’t be there for them. A web manager for a New York City agency who visits the The Motley Fool told us last spring that she was opting out of Social Security, which the city’s pension system allowed her to do. Why? “I don’t think Social Security is a wise investment given the availability of a deferred compensation plan,” she said. “It’s a known fact if it stays the way it is right now, it would run out of funds in 2035.”
Is it? Perhaps writer Ilan Moscovitz’s clear and straightforward explanations of the Social Security dilemma will challenge this woman’s perceptions, and those of others as well. Those kinds of thorough explanations with context have been missing in most media coverage we’ve seen.
The “5 Huge Myths” framework, often overused, works well in this case, and Moscovitz’s piece telegraphs to readers that Social Security is not, in fact, going bankrupt; that it does not add to the deficit; and that its financial “challenges,” as Moscovitz calls them, are not due to rising life expectancies as the press often reports; and that they are, in the end, not all that difficult to fix.
Along the way he also acknowledges that Social Security does more than provide retirement benefits, presenting a pie chart that shows that payments to the disabled account for about 16 percent of the program, and that survivors’ benefits making up about 10 percent. Much of the public is not aware that Social Security protects not only against loss of income in old age but also loss of income when someone becomes disabled or a breadwinner dies.
Most of all, Moscovitz tackles the canard that Social Security is going bankrupt. It’s easy to see why that notion has taken root, with all the talk in the press about Social Security going broke and “ending in my lifetime, “ as a kitchen remodeler asserted—unchallenged—on the CBS Evening News last week.
But it’s not. “To say Social Security is going bankrupt, you have to ignore its revenues,” Moscovitz reported. He wrote:
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. Microsoft would last nine months; United Technologies wouldn’t last two hours.
I haven’t seen that kind of analogy made in discussions about Social Security. It works here. Social Security, Mocovitz points out, has enough revenue from payroll contributions and investments to pay full benefits until 2033, and about 75 percent after that. And while Social Security is often discussed alongside fears about the federal deficit, Moscovitz notes that the program can’t add to the deficit because it has its own funding source—the payroll tax—and can’t spend any money it doesn’t have. This point, too, has been absent from public discussion. “The confusion,” says Moscovitz, “comes from the fact that under federal accounting practices Social Security is represented in the consolidated federal budget.”
Reporters who are serious about covering this after the election— when Beltway discussions about the fiscal cliff will really take off—might also want to look at Moscovitz’s argument about why the declining ratio of workers to retirees may not be a solid reason to raise the retirement age for collecting benefits.The idea of cutting benefits by raising the retirement age makes sense on the surface, because longevity is rising for some. But it is not rising for all Americans, and particularly for less-educated white people.