Social Security Trust Fund - How Much Is In It?
The national social security trust fund is the fund containing excess contributions from employers and workers in the form of social security taxes. It is divided into two components, the Disability Insurance (DI) Trust Fund and the Old Age and Survivors Insurance (OASI) Trust Fund. Collectively, the program is referred to as the Old Age and Survivors and Disability Insurance (OASDI) Trust Fund.
The surplus tax dollars in the social security trust fund are invested in securities called “special issues.” These are securities sold only to the trust fund. Two types of such securities exist: long-term bonds and short-term certificates of indebtedness. Currently, no securities available as special issues are available to the public. In congruence with the current global economy, the weighted average interest rates on these investments have steadily declined over the last two years. As of April 2010, the average interest weight for investments was 4.679, with an average of 7 years before maturity of the bonds.
The balance in the OASDI Trust Fund reflects the surplus income relative to payment out to recipients. This surplus is referred to as the fund’s assets. As of March 2010, the assets held in the Fund totaled approximately 2.5 trillion dollars. This income fluctuates considerably for two reasons. The first is that many of the self-employed tend to pay their taxes quarterly, but many pay annually when filing their income tax returns. The second is that interest income from the special-issue security investments is paid out twice annually into the fund.
Under the current social security system, the OASDI Trust Fund is not sustainable. While there have traditionally been surpluses of income into the fund versus expenditures from the fund, the balance is expected to remain approximately constant in 2010 due to the current economic recession. The balance is expected to rise again briefly as the economy picks back up in the next few years, but then it will face another, more serious problem. Beginning in 2016 as the baby boom generation approaches the age of retirement, the balance will begin a steady decline. The deficits will be made up by redeeming trust fund assets. The projected date of depletion of the fund is 2037. Following this date, new funds from social security taxes are expected to fund approximately three fourths of scheduled benefits until 2083.
The possible solutions to the inevitable erosion of social security benefits are as varied as political viewpoints. How we as a nation can address and correct this problem is one of the touchiest subjects among politicians and citizens alike. Many support the notions of raising social security taxes, reducing current benefits, or both, in order to maximize the ratio of income to distributions over the coming challenging decades. Others suggest the movement of assets from the current low-risk but low-interest investments into more risky, but potentially higher yielding investments. Clearly, there are no easy answers, but one fact is certain: whoever manages to solve the current challenges of social security, create a sustainable plan and then implement it successfully will have accomplished a monumental feat.