Americans Misunderstand Social Security but Appear Open to Reform

Younger Americans seem ready to treat the program as a safety net, not a retirement plan.

Despite his administration's talk about shrinking the size and cost of government, President Donald Trump has been careful to exclude entitlements like Social Security from consideration for serious reform. That makes it essentially impossible to fix federal finances given the massive chunk of expenditures represented by these programs, but it's understandable from a political perspective. The fact is that most Americans like Social Security, though they don't understand how it works or why it's headed for a fiscal cliff. The only good news is that the public gets that there is a problem, and some are open to changes.

Back in March, the White House put out a "fact check" promising that "the Trump Administration will not cut Social Security, Medicare, or Medicaid benefits. President Trump himself has said it (over and over and over again)." The assurances came amidst public concerns that DOGE cuts targeting waste and abuse mean promised benefits might be trimmed or delayed. Polling finds a large majority of Americans enthusiastic about Social Security even as they worry about its future. Many base their support for politicians at least in part on the issue.

Social Security's Origin in 'Straight Politics'

What's ironic is that the program's problems were knowingly built in from the beginning. According to the Social Security Administration (SSA) itself, when then-President Franklin Roosevelt was advised that the payroll tax funding mechanism for Social Security was financially unsound, he admitted that the economics were bad and that his plan was "straight politics" so "no damn politician can ever scrap my Social Security program." Well, he got his public support for the program—and the fallout from bad financial planning.

Fixing the 90-year-old problem will be harder than creating it, though. That's especially true since Social Security might be popular, but it's wildly misunderstood.

"Over half of Americans (55%) don't know how Social Security is funded," the Cato Institute's Emily Ekins and Hunter Johnson report of responses to a recent survey. "Less than half (45%) know that today's workers pay for current retirees, and that future workers will pay for their benefits when they retire. Nearly a quarter (23%) believe that their Social Security taxes are saved in a personal account for them. Another third (32%) say they don't know how Social Security is funded."

It's easy to see why people resent changes to a program if they mistakenly believe their taxes are contributions to personal investment accounts they'll draw against in the future. Admittedly, that's a minority of respondents, but it's enough to reinforce opposition to necessary reform.

Most Americans Mistakenly Think the Program Largely Replaces Income

Even more concerning is that 55 percent of respondents think Social Security is supposed to "largely replace seniors' income after they retire." In fact, it was set up as a safety net to make sure seniors don't fall into poverty; people are still supposed to save and invest to guarantee themselves something better than a hand-to-mouth existence. SSA numbers put retired workers' average monthly benefits at $2,002.39. The maximum possible monthly benefit is $5,108 if you retire this year at age 70 (it's lower if you retire early at 62 or at "full retirement age" of 67).

People are setting themselves up for discomfort and disappointment if they're not putting money away themselves for their senior years.

Americans Anticipate Benefit Cuts

That's especially true if, as people anticipate, Social Security is unable to pay out full benefits. The Cato survey finds "an overwhelming majority of nonretired adults (79%) do not believe they will receive their full scheduled Social Security benefits when they retire." Thirteen percent expect to receive nothing.

At the moment, in Congressional Budget Office projections, "the balance of the Old-Age and Survivors Insurance Trust Fund is exhausted in fiscal year 2033." After that, benefits will have to be cut to match available funds.

The SSA agrees. "The Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay 100 percent of total scheduled benefits until 2033, unchanged from last year's report," according to the Social Security and Medicare Boards of Trustees. "At that time, the fund's reserves will become depleted and continuing program income will be sufficient to pay 77 percent of total scheduled benefits."

To be clear, the trust find doesn't actually exist; it's just IOUs issued by the Treasury to the Social Security Administration. So, finances are even sketchier than official figures suggest. That means people are right to worry about the program's future. But their preferred remedies aren't promising.

"To avoid tax hikes or benefit cuts, a plurality (38%) of Americans would support switching to a flat Social Security benefit of about $1,800 a month for all retirees regardless of their prior earnings," note Ekins and Johnson. That could help the program's finances, but it would make Social Security an even lousier deal compared to private planning than it already is.

In 2016, the Tax Foundation compared the outcomes from private savings to Social Security benefits across a range of incomes. "In all but four of the 400 cases" in the analysis, "the annual income from saving outstrips the Social Security retirement benefit." The exceptions were "the very lowest income workers," suggesting Social Security would operate best as a welfare program for the poor. On the other hand, most people would be much better off if they could divert the money they currently surrender as payroll taxes to retirement savings plans like the 401(k). That would be a wiser fix than giving everybody a flat monthly government benefit.

Gen. Z Is Open To Reforming Social Security

Younger Americans may be open to the idea. In the Cato survey, "nearly half of Gen Z respondents said they would prefer cutting benefits (49%) to raising taxes (20%), while a majority of Baby Boomer respondents favored raising taxes (52%) to cutting benefits (13%)." And while younger respondents were more likely than older ones to mistakenly think payroll taxes fund personal Social Security accounts, most of them recognize that Social Security is only intended to prevent poverty. A Social Security program with shrinking benefits that's rightly recognized as a safety net is on its way to replacement by private planning—which will be easier if those payroll taxes can also be reduced or put aside as the program dwindles.

Social Security is a hot mess that was poorly structured as a means for retaining political power from the beginning. It provides lousy returns compared to private planning even as it approaches its financial doom. But, with the day of reckoning approaching, Americans seem to be bracing themselves for necessary reform.