This country’s Social Security program has been in the news lately and as I derive a portion of my retirement income from it, as I mentioned recently, I felt it was only fitting that I should correct some of the untruths that have been floating around in the news about it lately. Such as the blatant lie that it’s a Ponzi scheme.

Happily, last week Paul Krugman did all the heavy lifting, so all I have to do is point to his very clear explanation of how Social Security works, how it’s financed, and why the challenge of keeping it financed isn’t nearly as difficult as some folks make it out to be.

I highly recommend reading his The Clean Little Secret of Social Security.

As Krugman points out, the Social Security System is not, in fact, a pension plan, although it was designed to look like one. It’s a government program supported by a dedicated tax. Unlike a pension plan, “the relationship between what you contribute into Social Security and what you get out isn’t one-for-one. There is, in fact, some redistribution of income within Social Security. Americans who earned very low wages get most of those wages replaced by SS benefits. But high earners are treated much less generously.”

See the chart.

And that’s because it was designed that way. It’s intent was to reduce poverty among the elderly, and it has succeeded in that.

Workers pay 6.2% of their paycheck into the system (up to a maximum which only 6% of workers reach), and that is matched by 6.2% paid into the system by their employers. (Except, of course, those rich skinflint employers who tell you they are doing you a “favor” by paying you “under the table”. Actually, they are just trying to get out of paying their fair share, and they’re screwing you six ways to Sunday.)

And that’s the tax that supports the system while ensuring that the system will still be there when you need it.

There’s lots more in the Krugman piece.