Recently, a group of people were brought together to talk about reforming Social Security for the younger generation. Part of the discussion included allowing workers to put part of their money in individually owned personal retirement accounts.
At that point, a woman jumped up and exclaimed: "I already have one! I know because I got a statement from the Social Security Administration telling me how much money I have in it and how much I'll get back at retirement." Nothing could be further from the truth.
So, what does your Social Security statement tell you? First, it is intended to be an accurate account of your income and the Social Security taxes you have paid throughout your earning years. Then, it tells you what your estimated benefits will be at retirement. Looks good, doesn't it? Don't bank on it. Maybe the statement should add: "In spite of the look of a bank statement, there is no separate account with your money in it."
Indeed, your taxes are spent immediately to pay the benefits of today's retirees. Hopefully, when you retire, the workers then will be able to pay your benefits. By the way, if you read the fine print, you'll see that you only get the listed estimated benefits if you continue to work and pay Social Security taxes every year until you retire. The statement also tells you that in just 15 years, there won't be enough Social Security taxes paid into the system to pay all the benefits.
What isn't said is that when those taxes aren't enough, federal income taxes will be used to fill the shortfall for the next 20 years. Retirees at that time will get their full benefits, but workers will be paying twice-first with Social Security taxes and also with individual federal income taxes.
Oh, there is one last thing: According to the Supreme Court, you aren't entitled to a benefit at all! That's right. In 1960 in Flemming v. Nestor, the Supreme Court ruled that Social Security is an insurance program and we have no right to a benefit at retirement.
To its credit, the Social Security Administration has been trying to make the statements more understandable and has made progress. But until it's stated clearly, up front "You do not have an account with money in it," I'm afraid there will be many more people mistakenly counting on it.