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The Public Was Wrong About Social Security

Why did so many people miss the mark?

Illustrative photograph of John Rekenthaler, Vice President of Research for Morningstar.

Expecting the Worst

When I started working at Morningstar, I strongly believed that the Social Security system would not be around when I retired. My friends thought similarly. Social Security benefits were not funded, as were pensions. Rather, Social Security obligations were paid as they came due, with the obvious consequence that the money would eventually run dry, when demand from the ever-growing horde of retirees outstripped employees’ supply. Demographics guaranteed the outcome.

As demonstrated by a December 1989 Gallup Poll, our views had plenty of company. In the questionnaire, working-age adults were evenly divided about whether they would ever receive a Social Security payment. When asked, “Do you think the Social Security system will be able to pay you a benefit when you retire?,” 49% of respondents replied Yes and 47% said No.

Social Security Persisted

Half the country was deeply mistaken. The youngest respondents to that poll were born in 1971, making them now 51 years old. Those retirees will certainly receive Social Security wages. Their benefits might be lower than they had hoped, or perhaps even denied should they pass a means test, but everybody born in 1971 who will rely upon Social Security to make ends meet will be paid—as, of course, will all other age groups that were polled, my cohort included.

The system has not survived by cutting its belt. Over time, Social Security benefits have risen, not declined. In 1990, the average monthly Social Security payment to retirees (as opposed to disabled workers) was $550. Today, it is $1,673. Of course, inflation accounts for most of that gain, but not all. Expressed in 1990′s dollars, the current amount equals $720—a 31% increase. The raise is not surprising, as Social Security benefits are supposed to grow along with the nation’s real wealth, but it does indicate that the administration has delivered on its promises.

The Critics’ Arguments

What went right? Or, to rephrase the question, why were the people so wrong?

(To be clear, respondents were correct to question the long-term viability of Social Security. Their skepticism was fully justified. But expecting more than 30 years ago that the program’s benefits would be exhausted by the time that working adults entered retirement was clearly unwarranted. That event was never likely to occur—and very much did not.)

My initial thought was that the Social Security Administration has modified its projections. In 1989, the organization was distinctly pessimistic, but since that time, its outlook has brightened. Not so. The Board of Trustees’ 1989 report concluded that if the then-current policies remained in effect, the system would run out of money in 2046. In the 2021 report, that date advances to 2034.

Thus, the actual results have considerably trailed the official forecast—yet the people’s forecast was nevertheless too pessimistic. Hmmm. My next guess was that Social Security’s legion of critics had successfully challenged the official estimates, replacing the administration’s admittedly overly cheery predictions with assessments that were even dafter, but in the opposite direction.

That does not appear to have been the case, either. Admittedly, recovering research papers from the early internet age is difficult. My Google searches yielded only two candidates, but they strike me as representative of the group. One, published in 1993, is titled “The Coming Financial Collapse of Social Security.” The second, which appeared three years later, carries the slightly less provocative but still worrisome headline, “The Coming Crisis in Social Security.”

By and large, those papers are accurate. Their composers openly disdained the Social Security program, in the first case for existing at all (the writer was a libertarian) and in the second case for being imprudently financed. But they did not supply faulty projections. Instead, the papers used the Social Security Administration’s figures, then chipped away at the premises. Fair enough. Any 40-year forecast is likely not only to be inaccurate, at least to some degree, but also to contain a bundle of assumptions that deserve unpacking.

Lost in Translation

If the articles themselves were sensible, though, their outcomes were not. Rather than improve common knowledge, by demonstrating that the Social Security Administration’s estimates were just that—guesses of what might be, rather than calculations of what must be—the debate weakened the public discourse. The people already knew that Social Security was unsustainable in its current form. To survive, the program would need once again to be modified, as it had been several times previously, most recently in 1983. That was no secret.

What the nation did not know, because that belief was false, was that Social Security’s finances would implode during their lifetimes. Somehow, research that had raised valid concerns ended up creating turmoil. True, the poll should be interpreted with a few grains of salt. Although its question was precisely worded, such that an answer of Yes unambiguously meant that no benefit would ever arrive, some subjects surely took shortcuts. Their affirmative responses merely indicated distrust. Nevertheless, the confusion was widespread.

What happened? From my memory—anecdotal evidence, to be sure, but submitted by one who was himself misled—the details of the reports were lost in translation when they were summarized for the public. To some extent, the authors sought that effect; one does not place the word “collapse” into a headline while seeking a nuanced conclusion. But for the most part, such sensationalism inevitably affects popular accounts, especially when the topic is politically tinged.

Wrapping Up

This experience taught me an important lesson. When I started my career, I heard incessantly about the system’s demise. The media reported Social Security’s problems. At investment conferences, fund managers and financial advisors warned listeners not to depend upon income that might not arrive. Again and again, that message was delivered.

But reiteration did not improve the accuracy. Something said 100 times is not 50 times more correct than statements that are made twice. I did not fully appreciate that precept when I started my career. Thanks in part to the discussion about Social Security, I understand it now.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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