Image: Social Security Card © Comstock

If you want to know the truth about Social Security, don't ask a politician or a pundit.

There's just too much misinformation floating around about the retirement system, and it's coming from both sides of the political spectrum. Some on the left claim that everything is just dandy and no major changes need to be made, which is hogwash. Some on the right claim the system is irreparable, which is hooey as well.

Stranded in between are the confused millions who contribute to and benefit from the system. They just want to know if Social Security will be there for them when they need it.

The answer is yes, if the politicians can ever get their acts together.

Here are five big myths about the system that are getting in the way of getting things done:

Myth No. 1: Social Security won't exist when I retire.

Those who want to dismantle Social Security often suggest it's about to collapse into rubble. That false assessment is one of the reasons so many people are convinced the system won't be there when they need it.

It's true that Social Security's finances need fixing. Without changes, the system will be able to pay only 75% of promised benefits after 2037.

But the system doesn't need radical changes to restore its financing to solid ground. The bipartisan Debt Reduction Task Force, headed by former Republican Sen. Pete Domenici of New Mexico and Democrat Alice Rivlin, a former director of the Congressional Budget Office, suggested several repairs:

  • Gradually increase the full retirement age to reflect improvements in longevity.
  • Change to a different measure of inflation that grows more slowly to calculate cost-of-living increases.
  • Slightly reduce the growth in benefits for the top 25% of wage earners.
  • Boost the amount of earnings subject to the payroll tax over time.
  • Bring newly hired state and local government workers into the system.

Liz Weston

Liz Weston

These aren't the only changes that could be made. An immediate 1.8% payroll tax hike or a 12% overall benefit cut would also work (.pdf file). But a combination of smaller benefit cuts and tax increases may be the most reasonable, not to mention politically palatable, way of restoring the system to a strong financial footing. You can try coming up with your own solutions at the American Academy of Actuaries' Social Security Game site.

Myth No. 2: The trust fund assets are worthless.

Yes, Virginia, the Social Security trust fund actually exists. But it doesn't contain a big pile of cash.

The Old-Age and Survivors Insurance and the Disability Insurance trust funds collect our payroll taxes and invest the surplus, when there is one.

Over the years, the surplus has been lent to the federal government to pay for other programs. In return, the trust fund received IOUs in the form of special-issue, interest-paying Treasury bonds. These bonds are backed by the full faith and credit of the U.S. government, just as regular Treasurys are.

The trust fund has worked this way since its inception in 1939, by the way. Congress didn't place the fund "off limits" at one point and then later decide to raid it, despite hoax email assertions to the contrary.

The tricky part, and the reason some have dismissed the trust fund as an accounting fiction, is that the Treasury needs to come up with the money to make good the bonds when it's time to cash them in. This cash has to come from somewhere: increased taxes, reductions in other spending or additional borrowing. Although the trust fund assets aren't scheduled to be depleted for another 26 years, this need for the Treasury to redeem the bonds will put pressures on the federal budget well before 2037, according to the Social Security Administration's board of trustees.

Myth No. 3: Congress doesn't pay into Social Security, so it doesn't care about fixing the crisis.

U.S. lawmakers used to be exempt from the Social Security system. But that changed in 1984, when all federal employees, including members of Congress, were added to the Social Security system.

This myth is often accompanied by another fiction: that members of Congress participate in a lavish, exclusive pension scheme that guarantees 100% of their salaries for life, even if they serve only one term.

The truth isn't quite so juicy. Congressional lawmakers contribute to, and benefit from, pension programs that cover all federal workers. Before 1984, Congress and other federal employees were covered by the Civil Service Retirement System. Workers and lawmakers hired since then are covered by the Federal Employees Retirement System.

The pensions under either system depend on the federal worker's pay and how long he or she worked for the government. By law, the pension can't exceed 80% of the employee's pay in his or her last year on the job. Benefits paid under the system are reduced by the amount of Social Security a participant receives.

The rest of us would love to have a pension that pays 80% of our final pay, but the reality is that few federal workers, including lawmakers, will get that much. They simply won't participate in the system long enough. The average monthly benefit payment for federal workers is a bit more than $2,200, according to the U.S. Office of Personnel Management.

The reason Congress hasn't fixed the Social Security crisis is not indifference. It's politics. The most likely solutions all face strong opposition. If Social Security is going to get repaired, your lawmakers need to hear from you that you want it done, even if it means some difficult or unpopular changes.

Myth No. 4: Illegal immigrants are draining the system.

The U.S. has a serious illegal-immigration problem. More than 11 million people -- about 4% of the total U.S. population -- are living here without authorization.

This undocumented population has a heavy impact on schools and the health care system, among other things. But its effect on Social Security is actually positive. Illegal immigrants contribute billions of dollars a year, according to Social Security's chief actuary, Stephen Goss. Over the past few decades, the net positive contribution totals somewhere between $120 billion and $240 billion.

In other words, Social Security would be in worse shape than it already is without illegal immigration.

Undocumented workers pay taxes into the system under stolen Social Security numbers but rarely try to collect benefits, since they're not legally entitled to them. Some apply illegally, of course, and Goss estimates that such fraud costs the system about $1 billion a year, far less than what other illegal immigrants pay in.

To put the fraud into perspective: The Social Security system sends out $59 billion in checks every month, or more than $700 billion a year.

What's really causing Social Security's financial crunch is simple demographics: fewer workers supporting more retirees and other beneficiaries.

By the way, there's another, much larger group that doesn't benefit from its contributions to the system. This group includes married working women who make less than their husbands.

Married people can claim benefits based on their own work histories, or they can opt to get essentially half of their spouse's benefit. (You have to choose; you can't claim both at the same time.) So if your spouse's benefit is $1,000 a month, you would get a spousal check of $500.

That smaller spousal check is still greater than what many working women would qualify for, based on just their own work histories. And this spousal benefit is the same whether or not they worked. So these women get no benefit from all the payroll taxes they've contributed to the Social Security system.

Men can face the same situation if they're married to high earners. But typically it's women who are affected, since they usually earn less and have work histories that are often interrupted (as they stay home to care for kids or aging parents, for example).

Myth No. 5: I could earn better investment returns on my own.

Perhaps you could, but Social Security isn't an investment program. It's insurance, designed to insulate you against poverty in your old age.

Social Security is meant to provide you with a steady check in retirement that you can't outlive or lose in a stock market downturn. Many people wind up needing that income: Social Security provides the majority of income for more than half of people aged 65 or over. It makes up 90% or more of income for 43% of singles and 22% of married couples.

If you want an investment program that allows you to take your chances -- well, you've got that. You can (and should) invest through workplace plans like 401k's or on your own through individual retirement accounts and taxable accounts.

But all the evidence so far suggests that most people do a truly bad job of managing their retirement funds. They start too late, save too little and cash out when they leave jobs. They borrow against their savings or tap it for other expenses. They take too little or too much risk, hiding their money in cash accounts or overdosing on company stock, for example. They fail to rebalance their asset allocation. Some panic and sell in downturns rather than hanging on.

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You may well be the exception. Even if you are, you may still be glad to have Social Security -- rather than yourself -- supporting parents and other relatives who didn't do as good a job providing for their last years. And if it turns out you're not the investing genius you think you are, you'll still have Social Security to fall back on.

Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.