What is the Social Security Trust Fund
The Social Security Trust Fund refers to two accounts used by the U.S. government to manage surplus contributions to the Social Security system. The Social Security Trust Fund is used when contributions made by workers and employers exceed the amount currently needed to fund the Social Security system to make scheduled benefits payments to retired workers and the disabled. The monies held within the fund are invested in interest-bearing federal securities (Treasury bonds) in order to increase the value of the fund.
BREAKING DOWN Social Security Trust Fund
The two funds that make up the Social Security Trust Fund are the Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivor benefits, and the Disability Insurance (DI) Trust Fund, which pays disability benefits. They are often thought of as one fund and referred to as "the trust fund." The Social Security Trust Fund was originally created to account for an anticipated future shortfall in benefits needed to pay retirees via Social Security benefits payments. Following an increase in the Social Security payroll tax in the 1980s, the excess contributions from the tax increase were deposited into the Social Security Trust Fund to be used at a future date when the current assets of the Social Security system are no longer sufficient to cover their obligation. The asset reserves of the combined trust funds amounted to $2.8 trillion as of the end of 2016. For more information, the Social Security Administration (SSA) provides a FAQ guide covering the trust funds.
Social Security Trust Fund Solvency
Under current projections, the combined Social Security Trust Funds will run a surplus until 2022. With the assets currently in the funds, interest and the value of redeemable Treasury bonds, full benefits will be payable until 2034, at which point both funds will run out of Treasury bonds to cash in. After that, Social Security will be able to continue to pay out 75% of scheduled benefits from annual tax income. A number of ideas have been considered to address the coming shortfall, such as raising the retirement age, increasing taxes, cutting spending and benefits and borrowing more.
The SSA produces an annual OASDI trustees report that provides the current and projected financial standing of the trust funds.
Sometimes funds in the trust fund are used for purposes other than providing Social Security benefits. Such a practice creates a federal budgetary obligation (as part of the national debt or intra-governmental debt) to the Social Security Administration, which Congress can choose to avoid paying back by enacting legislation.