Members of the Social Security Council recently released the Annual Report, which discusses the present and anticipated financial situation of the Social Security Trust Fund. Media outlets have widely reported the fund’s downward trajectory. However, neither the trustees nor the media often reveal the less-than-pleasant truths surrounding the Trust Fund.
To begin with, it’s important to understand how Social Security functions. It’s primarily a pay-as-you-go system, meaning that the FICA payroll tax (12.4%) collected from current workers and their employers is directly funneled into the Social Security Trust Fund. This money is then used to provide benefits to today’s retirees.
Historically, workers have contributed more than what was needed to pay retirees, resulting in an annual surplus in the Trust Fund. As of today, the Trust Fund has about $2.5 trillion in assets, which gives the impression that it somewhat resembles a savings account for Social Security benefits.
Unfortunately, since 2010, the government has spent more on benefits than it receives from payroll taxes each year. This means they’ve had to dip into the Trust Fund’s surplus to cover the gaps.
The trustees claim that the Old Age and Survivor Insurance (OASI) Trust Fund will be able to pay out 100% of scheduled benefits until 2033. Once that happens, it’s expected that the reserves will be exhausted, leaving enough revenue to cover only 77% of the scheduled benefits thereafter.
What’s noteworthy here is the assertion that “fund reserves will run out” by 2033. But what if the Trust Fund is already technically empty? At the end of 2023, the OASI Trust Fund stood at $2.641 trillion. It collected about $1.106 trillion in payroll taxes in 2024, along with $54 billion from Social Security benefits and $64 billion in interest, resulting in a total revenue of $1.224 trillion. However, Social Security expenditures reached $1.327 trillion that same year, pulling $103 billion from the Trust Fund and reducing its total to $2.538 trillion.
Here’s an uncomfortable truth about the Trust Fund: its $2.5 trillion isn’t actually invested in stocks or bonds. Instead, the federal government borrows this money, creating a bit of an illusion. As explained by several sources, the Social Security surplus gets credited to securities issued by the Treasury. This excess income essentially offsets new federal borrowing needed to fund government operations.
Think about it like this: picture a family that typically has enough income to cover its monthly bills. If unexpected expenses arise—like a car repair—it can draw from its savings to manage these. The issue gets resolved. But if the family lacks real savings, borrowing becomes the only option.
When officials talk about reducing “fund reserves,” it may seem like what families do when they access savings to cover unforeseen expenses. However, that’s not the full story. If the government had operated at a surplus in 2024, it could have transferred some money to the Trust Fund. But with a projected $1.8 trillion deficit, borrowing was necessary to cover the Trust Fund’s shortage for current retirees, resulting in new debt to pay off old debt. They might even have to borrow more to cover interest payments on the Trust Fund.
This ongoing cycle raises eyebrows—supporters of the Social Security pay-as-you-go model, often Democrats, argue that the federal government isn’t truly in debt. But that argument misses the core issue. Trust Fund assets are nothing more than paper entries. If any portion of those IOUs is to be redeemed, it necessitates more borrowing.
So when Social Security flags concerns about not being able to pay the full benefits by 2033, a more precise statement would be that the funds required to pay full benefits might already not be available.
