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FAQ: Social Security Trust Funds

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November 3, 2023

Social Security

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The Summary

Our policy expert Tom Church gives you a primer on the OASDI trust funds.

Need a basic background on the Social Security trust funds? Start with this quick guide!

What do we mean when we talk about Social Security trust funds?

There are actually two Social Security trust funds. That’s because Social Security is technically made up of retirement and survivors’ benefits as well as disability payments.

The first trust fund is called Old-Age & Survivors Insurance or OASI. This is what people traditionally think of when they talk about Social Security.

The second trust fund is for Social Security Disability Insurance and is often called SSDI or DI.

When we talk about them together, we refer to them as the OASDI trust funds.

How much money is in the trust funds?

Up to date estimates can be found on this page. In today’s dollars, the OASDI trust fund has a balance of about 2.9 trillion dollars.

So there is 2.9 trillion dollars sitting around we can use?

Well, no. The Social Security Trust Fund is mostly an accounting device. The money can only be invested in “Special Issue” securities, which are created by the government. The actual money that is brought in from taxes is immediately paid out to beneficiaries and used to pay for other operations of government like other entitlements, national defense, or other discretionary programs.

So when we say there is 2.9 trillion dollars in the trust fund, what we mean is that there are bonds specially issued by the government that it owes itself 2.9 trillion dollars.

How are they funded?

Every earner pays 12.4% of their paycheck up to the taxable maximum to fund OASDI, although to a worker it only looks like 6.2% because their employer also contributes 6.2%.

0.9% of that 6.2% goes to the Disability Insurance fund and the other 5.3% goes to OASI.

How much money is coming in and how much is being paid out per year?

In 2017, payroll taxes brought in about $912 billion. Interest income on the existing trust fund was credited at $85 billion. Payable benefits cost about $953 billion.

Of that total, SSDI makes up about 15%, or almost a sixth of the total cost of Social Security spending. See Table 2 for more.

When are they scheduled to run out?

There are three sets of projections: low-cost, intermediate, and high-cost.

Under the low-cost projections, the combined trust funds are not projected to run out.

Under the intermediate projections, the combined OASDI trust funds are expected to run out in 2034.

Under the high-cost projections, they will run out in 2030.

Which projection should we use?

The way the Social Security Administration explains it:

“The intermediate set represents the Trustees’ best estimate of the future course of the population and the economy. With regard to the net effect on the actuarial status of the OASDI program, the low-cost set is more optimistic and the high-cost set is more pessimistic. The low-cost and high-cost sets of assumptions reflect significant potential changes in the interrelationships among factors, as well as changes in the values for individual factors.

Readers should interpret with care the estimates based on the three sets of alternative assumptions. These estimates are not specific predictions of the future financial status of the OASDI program. Rather, they represent a reasonable range of future income and cost bounded by two plausible, albeit very unlikely, demographic and economic scenarios.”

It seems safest to rely on the intermediate projections, but recognize that both the low- and high-cost projections are possible, albeit unlikely.

What happens when a trust fund runs out?

When the trust fund goes bankrupt, it doesn’t mean that retirees and people on disability stop getting any benefits. Instead, all benefits are immediately cut by the proportion of money collected and benefits promised.

If the United States had promised to pay $100 billion in benefits but only brought in $75 billion, then everyone’s benefits would be cut by 25%. They would continue to receive benefits, but only the proportion that is brought in from tax revenue.

The Social Security Administration’s best guess is that the OASDI trust fund will be bankrupt in 2034, resulting in an immediate cut of more than 20% for all retirees and disability recipients.

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How Does Social Security Fit Into The Federal Budget?

The federal budget is the itemized plan for public expenditures of the federal government. This includes mandatory and discretionary spending. The budget is compiled annually and is named after the proceeding fiscal year, which runs from Oct. 1 to Sept. 30. If a budget is not agreed upon by the start of the fiscal year, a government shutdown will be triggered unless Congress passes a continuing resoultion, which provides funding at existing levels for a period of time to allow for negotiations to continue.
Federal Budget
This ratio compares the federal government debt of a country to the country's gross domestic product (GDP), in other words, what it owes to what it produces. Expressed as a percentage, the higher the debt-to-GDP ratio of a country the more likely it is that a country will face economic challenges due to its debt.
Debt-to-GDP Ratio
The federal debt is the cumulative amount the federal government owes to bondholders, both foreign and domestic. This represents the total, historical difference between federal spending and revenue.
National Debt
The federal budget deficit is the annual difference between the federal government’s revenue and how much it spends.
Budget Deficit
GDP is the total monetary value of consumer goods and services within a country's economy. This calculation considers consumer spending, government spending, private domestic investment, and a country's imports and exports.
Gross Domestic Product (GDP)
The U.S. federal government's sole source of income is tax revenue, which is primarily composed of individual income taxes, corporate income taxes, and payroll taxes. Other sources of tax revenue include excise taxes and estate taxes.
Tax Revenue
These bills provide and place limits on an agency's budget authority, the ability to spend government funds. There are 12 annual appropriations bills and occasional supplementary appropriations bills that obligate federal funds for specific purposes.
Appropriations Bills
Authorizing legislation is a prerequisite for Congress to appropriate budget authority, or the ability to spend government funds for various programs. Authorization laws also act as guidance on the appropriate level of funding to be set aside for specific programs. This might be in setting a limit, or it may simply authorize “such sums as may be necessary.”
Budget Authorizations
A congressional budget resolution establishes topline spending and deficit limits for the following fiscal year. Although not law, because it's not signed by the president, budget resolutions are enforceale using the rules of either chamber. By law, a budget resolution is to pass the House and Senate by April 15 of each year, which rarely happens.
Budget Resolution
The president's budget request kicks off the annual budget process and provides a breakdown of how the president would like Congress to enact tax and spending laws. This request is due on the first Monday in Feburary but is normally provided late.
Budget Request
Discretionary spending is the portion of the federal budget that Congress debates every year. There are 12 components of discretionary spending, and these are usually broken down into defense and non-defense spending.
Discretionary Spending
The programs that Congress is required to fund make up mandatory spending. This includes programs like Social Security, Medicare, and interest payments on the debt.
Mandatory Spending
What you pay for your own medical care.
Out-of-pocket Payments
Within the context of the Hospital Insurance (HI) Trust Fund, insolvency means that Medicare is unable to cover the full cost of Part A (hospital care) benefits.
HI Trust Fund Involvency
Chronic conditions are diseases and conditions that usually last for 3 months or longer, such as diabetes, heart disease, hypertension, and cancer.
Chronic Diseases
The percentage of the costs of a healthcare service that you pay (e.g., 20%). Coinsurance kicks in after you've paid your deductible.
Coinsurance
The amount you pay for healthcare services before your insurance begins to cover expenses.
Deductibles
Examples include disabilities that qualify the individual for Social Security Disability Insurance (SSDI) benefits (i.e., unable to engage in “substantial gainful activity” because of a medically-determined physical or mental impairment expected to last at least 12 months or until death), end-stage renal disease (ESRD), and amyotrophic lateral sclerosis (ALS).
Long-term Disabilities
For every current recipient of Social Security, there are several active workers whose taxes are transferred directly to retirees. When Social Security began, there were dozens of workers per every recipient. That number has shrunk to just under three workers for every active Social Security recipient.
Worker-to-Beneficiary Ratio
As a covered worker, you pay Social Security taxes up to the taxable maximum. In 2024, that amount is $168,600. Since Social Security was never meant to function as a retirement program, wages subject to taxation were capped so that high-income individuals did not end up with Social Security payments many times what would be necessary to prevent poverty in old age.
Taxable Maximum
As the spouse of a Social Security recipient, you are entitled to additional benefits of up to one-half of their full benefits. You do not have to have a work history to receive this payment. If you have worked and are owed Social Security benefits, you get the maximum of what you are owed or your calculated spousal benefit.
Spousal Benefit
All funds in the OASDI trust funds are invested in "special issue securities" specifically created for Social Security. In effect, they are IOUs that the government pays to itself.
Special Issue Securities
In the context of Social Security, the "replacement rate" or "replacement ratio" is the percent of pre-retirement earnings that Social Security recipients can expect to receive. Median-income retirees typically expect around a mid-thirty percent replacement rate, low-income retirees get closer to fifty percent, and high-income retirees typically receive a mid-twenty percent replacement rate.
Replacement Rate
Every covered worker pays a payroll tax that includes a combined 12.4% up to the taxable maximum.
Payroll Tax
The primary insurance amount is the sum of three separate percentages of the AIME. It is the initial benefit a retiree receives, and it increases with any future COLA.
PIA
The Old Age and Survivors Insurance Trust Fund is what most people picture when they hear "Social Security." This trust fund pays benefits to retired workers and their spouses and dependents. It also pays benefits to the survivors of deceased retirees.
OASI
OASDI stands for Old Age, Survivors, and Disability Insurance. It encompasses both the retirement portion of Social Security (OASI) and the disability insurance program (DI).
OASDI
The full retirement age began at 65 but is slowly increasing to the final age of 67 for those born in 1960 or later.
Full Retirement Age
Employers whose workers pay into Social Security also contribute 6.2% of each worker's payroll taxes. While it may seem like employers pay for half of all benefits, economists typically assume that any taxes paid by employers are in effect paid by employees, since in absence of the mandatory taxes, the employees would have higher wages by roughly the same amount.
Employer Contribution
Every covered worker contributes 6.2% of their paycheck in OASDI payroll taxes, which constitutes the "employee contribution" toward Social Security.
Employee Contribution
Future Social Security recipients can elect to retire early at 62 and receive reduced benefit payments. For more, click here.
Early Retirement Age
DI stands for Disability Insurance. While most people associate Social Security with retirement, it also technically encompasses disability insurance payments to almost nine million Americans.
DI
The total amount of any employee's pay that is taxed by Social Security payroll taxes. All wages below the taxable maximum are covered earnings. About 94% of workers fall under the taxable maximum every year.
Covered Earnings
The cost of living adjustment (COLA) is an annual adjustment for Social Security benefits designed to prevent losses in beneficiaries' purchasing power due to inflation.
COLA
Social Security recipients are not limited to retirees. In the OASI system, spouses are entitled to a spousal benefit, as are dependents of beneficiaries who are under the age of 19.
Beneficiary
Stands for average indexed monthly earnings. When a worker retires, the Social Security Administration summarizes up to 35 years of the worker's lifetime earnings and adjusts them for wage inflation. This number is then used to calculate the retiree's "PIA" or primary insurance amount.
AIME