Donald Trump defends social security on his 90th anniversary
President Trump celebrated the 90th anniversary of Social Security and has pledged to protect and expand the interests of seniors.
American workers pay taxes to the Social Security Trust Fund. The more you earn now, the more you will reap the second half of your retirement benefits. You can monitor progress on government accounts called “My Social Security.”
These facts may lead you to believe that everyone has an individual Social Security Fund.
One in four Americans think that exactly. According to a new study from the Libertarian Cato Institute.
The poll asked respondents how Social Security funds were funded. Only 45% of respondents chose the correct answer.
How does Social Security work? Most of us don’t know.
A recent study by Cato and AARP shows that the confusion has ramped into the fundamental work of social security. Both polls match Social Security 90th Anniversary marked on August 15th.
In a CATO survey released on August 7th, only 9% of Americans correctly identified the maximum annual Social Security benefits above $60,000 on a multi-select list. Only a quarter correctly estimated the average annual benefit. This can be between $20,000 and $30,000.
An AARP survey released in July found that three-quarters of Americans believe they are informed of how social security works.
But what about them?
In that survey, only 40% of Americans who knew the earliest age of social security could be 62 years old. Only 24% knew the age to claim when your benefits check is the maximum: 70.
“When we started asking questions, it was clear that people weren’t as knowledgeable as they thought they were,” said Bill Sweeney, senior vice president of government affairs at AARP.
Pay as you go: How Social Security really works
Here’s how Social Security actually works:
A portion of your income will be in Social Security Trust funds for retirement, and the other for a disability, in a pair of Social Security Trust funds. Social Security benefits are paid from these funds.
Social Security is known as the Pay as You Go program. In other words, the profits paid to today’s retirees are collected primarily from current workers.
In other words, the Social Security benefits you receive are not the money you earn. In that sense, the term “trust fund” may be a bit misleading.
“The terminology alone confuses things,” said Robert Brokamp, senior retirement advisor at Motley Fool.
Relentless messaging about social security from politicians and personal finance websites may suggest that workers are paying their own money to eventually retire.
It is true that the amount you earn determines the size of your final profit check. But the money in those checks will mostly come from future workers.
“We’ve seen a lot of money on our financial journalism site, Caleb Silver, editor-in-chief of Investopedia,” said:
“It definitely isn’t sitting on an account with your name,” he said. “It’s sitting on an account with everyone’s names on it.”
Social Security is facing a fiscal cliff
Through much of its history, the Social Security program raised more money than it paid, creating a total of $2.7 trillion reserve at the end of 2024. The latest forecasts show that Social Security will face shortages by 2034.
According to AARP, if the reserves are gone, federal agencies have enough funds to pay only about 81% of their full benefits.
Most Americans know that. In a Cato poll, 79% of working-age adults said they don’t think they’ll get full benefits when they leave. About 1 in 10 people don’t expect any benefits at all.
AARP polls also found that Americans were deeply pessimistic about the future of social security. Over three-thirds of respondents believe that benefits will be suspended when the reserves run out.
For years, American workers have predicted the end of Social Security. AARP has been voting for Americans on federal programs for 40 years. Faith never runs high.
“The people who returned in 1985 didn’t have the confidence that Social Security was there for them,” Sweeney said. “And what’s interesting is that the numbers are consistent.”
Social Security has faced bankruptcy before
Social Security has previously faced bankruptcy. At one point in the early 1980s, during the recession, the program’s fiduciaries predicted a shortage of months ahead.
In 1983, policymakers fixed Social Security by collecting new taxes and gradually increasing the retirement age.
Congress has similar options to strengthen social security between now and 2034.
Policymakers can choose to collect more social security taxes. They were able to raise their retirement age once again and asked Americans to wait longer to collect larger benefits checks. Or they can borrow money.
“I think Congress will definitely do something to avoid reducing profits,” said Emily Ekins, Vice President and Director of Voting at Cato. “I don’t think they’re just allowing them to cut down on a quarter benefits.”
But how will Congress amend the program? Do you want to raise taxes, borrow money, or reduce benefits? Cato raised the question in his investigation.
The largest share of Americans, 37%, said they support higher taxes. It was slightly less, with 35% backing the borrowing of funds. Only 28% said they prefer to reduce benefits.
What if all Social Security checks were $1,800?
There is a more fundamental solution. Congress can abandon complex benefits ceremonies in favor of monthly flat checks. For example, about $1,800.
In the CATO survey, 38% of respondents said they support flat benefits as an alternative to tax payments or program reductions. Obviously, it’s not for everyone.
“The real basic part of Social Security is that the more you pay, the more you go out,” said Sweeney of AARP. “And I think that’s really important to how you configure your program.”
