Table of Contents

Social Security Trust Funds

By

Julia Kagan

Updated July 18, 2022

Reviewed by Pamela Rodriguez

Fact checked by

Amanda Jackson

What Are Social Security Trust Funds?

Social Security trust funds are two accounts used by the U.S. government to manage surplus contributions to the Social Security system. The trust funds hold payroll tax contributions made by workers and employers. They make scheduled benefits payments to retired workers and people with disabilities, and invest surplus funds in a special class of interest-bearing federal debt obligations, which provide the funds with additional income.

Key Takeaways

Social Security trust funds receive payroll taxes and pay out benefits to retirees, disabled workers, and survivors.
They invest surplus receipts in low-risk government securities that earn interest, providing the trust funds with additional income.
The trust funds swung to an annual funding shortfall in 2021, and deficits are expected to grow in the coming years as more Baby Boomers retire.
The 2022 Social Security Trustees Report projected Social Security trust funds will be depleted on a combined basis in 2035, a year later than the prior year's projection.

How the Social Security Trust Funds Work

The two Social Security trust funds are known as the Old-Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance (DI) Trust Fund. OASI pays retirement and survivor benefits, while DI handles disability claims. They are sometimes referred to as a single fund. The Social Security trust funds were created to hold surplus payroll tax receipts until such time as they are needed to pay Social Security benefits.

The trust funds hold receipts from payroll taxes, with the employer and employee each paying 6.2% of the employee's earnings. The self-employed pay 12.4% of their earnings. These rates were last increased in 1990.

The combined reserves of the trust funds amounted to $2.83 trillion at the end of Q1 2022. The Social Security Administration (SSA) provides a FAQ guide covering the trust funds.

2035

The year in which Social Security trust funds are projected to run out of money on a combined basis.

Why the Trust Funds Are Depleting

The Social Security trust funds swung to an annual deficit in 2021 as their costs exceeded income. The shortfalls are expected to widen in the coming years as Baby Boomer retirements leave fewer payroll tax contributors to support each benefits recipient.

While the DI fund on its own was projected in 2022 to have sufficient funding for the next 75 years as a result of recent declines in disability claims, the OASI fund paying retirees and survivors was expected to run out of surplus funds in 2034, or 2035 on a combined basis for the two trust funds. At that point, the funds' income will cover 80% of expected benefits.

Congress has raised payroll tax rates frequently in the past to ensure Social Security's solvency. The projected funding shortfalls could be addressed by doing so again, cutting benefits, borrowing to maintain benefits without increasing receipts, or some combination of those approaches. The Office of Chief Actuary of the SSA publishes estimates of the financial effects of various proposals for reforming the Social Security programs.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

U.S. Social Security Administration. "What Are the Trust Funds?"
U.S. Social Security Administration. "The 2022 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds," pp 49-50.
Congressional Research Service. "Social Security: The Trust Funds," pp. 2-3.
U.S. Social Security Administration. “Social Security Board of Trustees: Outlook of Combined Trust Funds Improves.”
U.S. Social Security Administration. "Social Security & Medicare Tax Rates."
U.S. Social Security Administration. "Financial Data for the Social Security Trust Funds."
U.S. Social Security Administration. "Trust Fund FAQs."
U.S. Social Security Administration. "The 2022 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds," pp. 3-6.
U.S. Social Security Administration. "Office of the Chief Actuary's Estimates of Proposals to Change the Social Security Program or the SSI Program."

Take the Next Step to Invest

×

The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.