Social Security plays a key role in nearly every American worker's retirement plan, but for something so universal, it's remarkably poorly understood. Some think it's enough to cover all of their retirement expenses, while others think it won't be around for them at all. Neither view is correct.

I've compiled some key facts about Social Security to set the record straight so you can understand how it fits into your retirement plan. At least one of these should surprise you.

Pile of Social Security cards.

Image source: Getty Images.

1. Social Security was only ever meant to cover 40% of preretirement income for average earners.

Current retirees and older adults nearing retirement tend to rely heavily upon Social Security, with many saying they intend to use it as their primary source of income in retirement. But the program was never designed to serve that purpose. It was only intended to cover 40% of preretirement income for "average earners," according to the Social Security Administration, though it gives no definition for average earnings. Low-income households might find it covers more than 40% for them, while higher-income households might find it covers less.

The average Social Security benefit as of July 2019 is $1,472 per month for retired workers. That comes out to $17,664 per year. The Bureau of Labor Statistics estimates that the average household headed by an adult 65 or older spends just under $50,000 per year. Based on this data, the typical Social Security check will only cover about 35% of the average retiree household's expenses. If there are two adults claiming Social Security in the household, this percentage could be higher.

2. Social Security is not going to go bankrupt.

While older adults are often guilty of relying too heavily on Social Security, many young adults fear that Social Security won't be around for them because the trust funds it draws from are slated to be depleted by 2035. This is true, but it doesn't mean what most people think it means. Even if the government didn't make any changes to Social Security at all, it would still be able to pay out 80% of scheduled benefits from 2035 until at least 2090.

Social Security can never go truly bankrupt unless the government decides to end the Social Security tax on workers and the Social Security benefit tax on high-income beneficiaries. These taxes generate new revenue for the program every year. The problem we're having now is that there are more older retirees claiming benefits and fewer younger workers paying into the program than there once were, so the taxes aren't providing enough revenue to cover all of the scheduled benefits.

Government officials have already proposed solutions to reform the program so it will be around for generations to come. We don't know what those changes will look like yet, but possible options include:

  • Raising the Social Security tax rate (currently 12.4% split evenly between employee and employer)
  • Raising the full retirement age (currently 66 or 67 for today's workers)
  • Raising the ceiling on income subject to Social Security ($132,900 in 2019)
  • Reducing benefits
  • Reducing the cost-of-living adjustments (COLAs) that help Social Security keep pace with inflation

Based on these proposals, it's likely that Social Security benefits won't stretch as far in the future as they do today, but they will still be around for you and your children and their children as well.

3. Lawmakers don't raid the Social Security trust funds.

Some people erroneously believe that part of the reason the Social Security trust funds are in danger of being depleted is that lawmakers rob the trust funds when they need money for other government expenses. This is a distortion of the truth.

The fact is that the Social Security Administration invests any money left over after paying out benefits and covering its administrative costs in U.S. Treasury securities. Lawmakers can use this money to cover other government expenses, but they must pay it back with interest, so they're not taking away money that would've gone to deserving retirees, the disabled, or their families. And that money does end up back in the trust funds eventually.

Now that we've sorted out some of the truths from the myths, you hopefully have realistic expectations for your Social Security benefits. They will be there for you, whether you plan to retire tomorrow or in 30 years, but they're not enough to support you on their own. You need to prioritize your personal retirement savings and create a custom retirement plan if you don't have one already. This should be your primary source of income in retirement. Social Security is only meant to be a supplement.