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The 3 Biggest Fears Americans Have About Social Security

Social Security is an important government program, and the polls say it's a popular one. In fact, according to a recent survey conducted by the AARP, it enjoys support from over 90% of Americans across all political parties. 

But, while current retirees describe Social Security as an essential source of income, and future retirees indicate they'll be depending on it, most people also believe it's in serious trouble. Close to 60% of people are afraid for its future, the AARP data shows. And most of the public share these three key fears. 

Older woman sitting on couch with check and calculator.

Image source: Getty Images.

1. They don't trust the government to keep its promises

Around 29% of survey respondents fear for the future of Social Security because they don't believe Washington will live up to its word. It's not surprising the public is wary of politicians keeping their promises, but this shouldn't actually be a big concern because Social Security is set up to keep paying benefits in perpetuity even without any action from Congress. 

Social Security collects money from payroll taxes, which are a dedicated revenue stream. By law, the money has to be put into the program's trust fund, which is invested in special issue bonds backed by the full faith and credit of the U.S. government. And while politicians may not always keep their word, the government will always continue to pay on its bonds. Otherwise, the country is in really serious trouble.

The money in the trust fund, collected from payroll taxes, must be paid out in accordance with the Social Security benefit formulaSince you don't need your representatives or the president to act in order to make any of this happen, you aren't reliant on them to keep any promises to you. 

2. They think money is running out

Just over a quarter (26%) of Americans are concerned about the future of Social Security because they think the program is running out of money. This is something to worry about, but not as much as you'd think. 

See, Social Security can't really run out of money as long as people are still working and paying payroll taxes, as these payroll taxes provide billions of dollars in annual income. What can happen, however, is that the trust fund can run out of money. This is actually slated to occur in 2035 but could happen sooner due to the effects of COVID-19. 

If the trust fund runs dry, payroll tax revenue will keep coming, so Social Security won't be broke. But payroll taxes provide enough to pay only about 76% of promised benefits. Without the trust fund as a backup, retirees could be looking at a 24% benefit cut.

You should be worried this benefit cut could happen, or that lawmakers might cut your benefits in other ways to prevent it. But you don't need to concern yourself with the thought Social Security will go bankrupt and you'll get nothing, as that can't happen unless a major change to the law occurs and the program loses payroll taxes as a dedicated funding source. 

3. They think politicians have raided Social Security

Finally, 16% of survey respondents said they worry for Social Security's longevity because they think the government took money from the program's cash reserves. In reality, however, this has not happened and cannot happen. 

Remember, as mentioned above, payroll tax revenue that's collected goes into Social Security's trust fund which, by law, is invested in special issue bonds. Yes, the government funds spending with the money it's borrowed using these bond instruments, but the bonds are paid back with interest. This is no different than anyone buying corporate or government bonds as an investment with the goal of earning a return. After all, if you buy treasury bonds and loan the government money, you don't look at that as the government raiding your bank account. 

Make sure you're worried about the right things when it comes to Social Security

As you can see, Americans have some legitimate fears about Social Security but also some fears that are unfounded. One thing people don't worry enough about, though, is the fact that they may end up overly dependent on Social Security.

Your retirement benefits from this program are meant to be part of a three-legged stool that also includes a pension and savings. But far too many people depend on Social Security benefits to provide more of their household income than they should. This could cause serious financial struggles for seniors, especially if a benefit cut does happen in the future.

To avoid this, assume when setting retirement goals that you'll get the lowest possible Social Security checks and plan accordingly. If you end up getting more money than you expect, consider it a bonus. But if you get less, your savings will be there to provide the financial security you deserve. 

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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