5 myths about Social Security (5) by Liz Pollium Weston

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.

(Medicare is in far worse shape than Social Security. Medicare's trustees project insolvency in 2019, 23 years before the earliest date Social Security is scheduled to run aground. Medicare has an unfunded liability of $27.7 trillion over the next 75 years, while Social Security's unfunded liability for the same period is $3.7 trillion. To put this in perspective, the entire national debt is currently about $7 trillion.)

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, and account for $700 billion of the $3.7 trillion unfunded liability.

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.

Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money.