Social Security: The Trust Fund

Dawn Nuschler
Specialist in Income Security

Gary Sidor
Information Research Specialist

The Social Security program pays benefits to retired and disabled workers and their family members, and to family members of deceased workers. Program income and outgo are accounted for in two separate trust funds authorized under Title II of the Social Security Act: the Federal Old-Age and Survivors Insurance (OASI) trust fund and the Federal Disability Insurance (DI) trust fund. This report refers to the two trust funds as an aggregate Social Security trust fund and discusses the operations of the OASI and DI trust funds on a combined basis. 

Social Security is financed by payroll taxes paid by covered workers and their employers, federal income taxes paid by some beneficiaries on a portion of their benefits, and interest income from the Social Security trust fund investments. Social Security tax revenues are invested in federal government securities (special issues) held by the trust fund and these federal government securities earn interest. The revenues exchanged for the federal government securities are deposited into the general fund of the U.S. Treasury and are indistinguishable from revenues in the general fund that come from other sources. Because the assets held by the trust fund are federal government securities, the trust fund balance represents the amount of money owed to the Social Security trust fund by the general fund of the U.S. Treasury. Funds needed to pay Social Security benefits and administrative expenses come from the redemption or sale of federal government securities held by the trust fund. 

The Social Security trust fund represents funds dedicated to pay current and future Social Security benefits. However, it is useful to view the trust fund in two ways: (1) as an internal federal accounting concept, and (2) as the accumulated holdings of the Social Security program. 

For internal accounting purposes, certain accounts within the U.S. Treasury are designated by law as trust funds to track revenues (and expenditures) dedicated for specific purposes. There are a number of trust funds in the U.S. Treasury, including those for Social Security, Medicare, unemployment compensation, and federal employee retirement. 

By law, Social Security tax revenues must be invested in U.S. government obligations (debt instruments of the U.S. government). The accumulated holdings of U.S. government obligations are often viewed as being similar to assets held by any other trust on behalf of the beneficiaries. However, the holdings of the Social Security trust fund differ from those of private trusts because (1) the types of investments the trust fund may hold are limited and (2) the U.S. government is both the buyer and seller of the investments. 

This report covers the basics of how the Social Security program is financed and how the Social Security trust fund works. It will be updated annually to reflect current projections of the financial status of the Social Security trust fund.


Date of Report: August 20, 2010
Number of Pages: 19
Order Number: RL33028
Price: $29.95

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