Understanding the Social Security Trust Funds

The Two Funds

There are two Social Security trust funds or separate accounts where money is collected and deposited. These accounts are the Old-Age and Survivors Insurance Trust (OASI), and the Disability Insurance Trust (DI). Many publications refer to the two accounts together with a joint acronym, OASDI.  It’s worth noting that a combination of the OASI and DI trust funds does not technically exist.  Even Social Security refers to the fictitious OASDI trust funds when describing the full program or discussing its long-term outlook.

Social Security’s trust fund accounts (OASDI) brought in $996.6 billion in revenue last year. It is estimated by the Trustees report, Social Security may collect over $1 trillion in revenue this year.

Here is where the money comes from:

  1. Payroll tax: Without question, the largest contributor is the 12.4% payroll tax on wage income of up to $128,400 as of 2018. This is made up of what both the employer and employee contributions.
  2. Interest income: The second-largest contributor is interest income earned by Social Security’s $2.9 trillion in asset reserves.
  3. Taxation of benefits: Lastly, $37.9 billion was collected in 2017 as a result of taxing Social Security benefits.

Where does the money go?

As you can probably guess, most of the money collected each year winds up going right back out to pay benefits.  In 2017, $941.5 billion of the $952.5 billion in program spending was spent on benefit payments.  This included $798.7 billion from the OASI Trust and $142.8 billion from the DI Trust. The remaining expenditures include $4.5 billion to the Railroad Retirement financial interchange and $6.5 billion in administrative costs. This left a surplus of $44.1 billion in 2017 that was added to Social Security’s asset reserves.

When there’s the money left over, it is known as Social Security’s asset reserves. Almost $2.9 trillion has been built up over the past 35 years. By law, the Social Security Administration is required to invest its excess cash into spSocial Security Trust Fund applicationecial-issue bonds, as well as certificates of indebtedness. The average yield on its investment portfolio, which has numerous maturity dates and yields, is 2.9%.

An even easier to way to understand this situation is to think of it this way: Social Security is lending the federal government money, and the federal government is paying interest on that loan, plain and simple.

Most do not truly understand the ins and outs of how Social Security works or when is best to claim their benefit. Most people collect at 62 and let Social Security guide them on how to file. Social Security is not allowed to give advice or guidance on how to maximize benefits and if you are a widow(er), married or divorced, we strongly encourage you to have a discussion with me before your initial visit to Social Security.

We can help you approach Social Security with a plan, and/or help you file. Contact us with questions.

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