5 myths about Social Security

But those statistics reflect the higher infant and child mortality rates of the times. If you survived childhood, you had a good shot of living beyond retirement age. Men who lived to age 30 in 1935 could expect to last another 37 years. Women at 30 had a 40-year average life expectancy.

If you actually reached retirement age, your prospects for a relatively long retirement were good. Men who were 65 in 1935 could expect to live another 12 years, while women faced an average 13 more years. (Today, men of the same age can expect to live another 17 years, and women 20 years.)

In fact, about half of the 30 state pension plans that existed in 1935, and many of the private pension plans, used 65 as a retirement age. Most of the others used age 70. Social Security's creators thought 65 was the more reasonable age and believed the system could be self-sustaining if they chose that age.

Myth No. 4: Social Security will run out of money in 2041. Social Security will still be receiving payroll taxes from workers in 2041. What may have disappeared by then are the assets in the Social Security trust fund.

Even that isn't cast in stone, however. The Congressional Budget Office in June 2006 projected that the trust fund wouldn't dry up until five years later, in 2046. The CBO used different assumptions than those used by the Social Security Administration, projecting faster growth in worker earnings, higher interest rates and lower inflation.

Here's how the Social Security Administration projects the timeline:

• In 2017, Social Security will begin paying out more than it takes in. For the first time, it will have to use the interest being paid on the securities it holds in order to meet its obligations.

• In 2027, Social Security would have to start redeeming the securities themselves.

• By 2041, Social Security would have cashed in the last security, and the system would have enough revenue to pay out only 75% of promised benefits. That percentage would drop over time if Congress failed to act.

Demographics and add-ons

Myth No. 5: Social Security wouldn't be having problems if foreigners weren't able to claim Social Security benefits. The number of checks sent overseas in 2002 totaled 404,640 -- a tiny fraction of the 53 million or so checks Social Security issues annually. Many of those folks may well be Americans who retired abroad. Social Security doesn't break down the overseas checks by citizenship.

In any case, foreign workers who live in the United States have to work and pay taxes into the system for at least 10 years to qualify for Social Security benefits, just as U.S. citizens do.

What will really hurt Social Security are two factors: demographics and the scope of Americans who are covered.

In 1950, there were 16 workers for every person receiving Social Security benefits. By 2015, there will be only three workers for each beneficiary. Fifteen years after that, the ratio will be down to 2.2 to 1.

Even that demographic shift wouldn't be such a disaster if Social Security hadn't expanded far beyond its original mandate of providing retirement benefits for workers. About 30% of Social Security's total benefits are paid to retirees' dependents and survivors and to disabled workers.

Here's a summary of the add-ons over the years:

• In 1939, five years after Social Security began, Congress added payments for the families of workers who died, and for retirees' dependents (such as stay-at-home spouses).

• In 1956, Congress added disability benefits for workers.

• In 1965, Congress established Medicare to pay health-care costs for seniors.

• In 1974, Supplemental Security Income or SSI was established as a welfare program for low-income seniors and people with disabilities.

Of these add-ons, however, only the first two -- disability benefits and payments to dependents, widows, orphans -- actually affect Social Security's bottom line.

SSI benefits are paid out of the federal government's general revenues. Medicare is paid for with its own tax and has its own trust fund.

Like Medicare, the disability insurance program also has its own tax and its own trust fund. But the disability fund's results are combined with that of the retirement system when Social Security insolvency projections are made, Goss said.

If the disabled, the dependent and the survivors were booted out of the system, Social Security could pay for itself --assuming tax levels remained the same.

"The system would be more than adequately funded," Goss said, "if only retirees were receiving benefits."

That's not a solution Goss -- or anyone else who really thinks about it -- could endorse. Even if it were morally viable, kicking out all the widows, orphans, disabled and stay-at-home spouses is politically untenable.

So we're back to choosing from the same controversial list of options: cutting benefits, raising taxes, privatizing some or all of the system. What we choose, though, should be based on the realities of the system -- not the myths.

Columns by Liz Pulliam Weston, the Web's most-read personal finance writer, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Updated Dec. 14, 2007

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