Understanding the Social Security Trust Fund

There’s been a lot of talk lately that Social Security is going broke. That’s not true. What is true is that its trust fund is facing a deficit and at some point, in the near future, Social Security will no longer be able to pay full benefits.

Technically Two Trust Funds

According to Valpo.Life, the Social Security “trust fund” is actually two separate funds: the Old-Age and Survivors Insurance (OASI) trust fund, which funds retirement benefits, and the Disability Insurance (DI) trust fund, which pays disability benefits. By law, these two funds cannot mix their assets.

The combined reserves of these trust funds peaked in 2020 at $2.9 trillion but are now steadily declining and are expected to be insolvent by 2035.

What Happens Then?

There’s a big misconception that once the trust funds run out, Social Security benefits will cease. That is simply not true.

Even if the trust fund is depleted, Social Security will still bring in money from payroll taxes, but that won’t be enough to cover full benefits. There will be no choice but to reduce benefits. All indications are that beneficiaries could see their monthly benefit checks cut by about 20 percent. That could be financially devastating to the millions of older Americans who rely on this retirement income.

Another Option

The Seniors Trust believes the best way to ensure retirees continue to receive their hard-earned benefits is for Congress to enact the Social Security Expansion Act.

Sponsored by Sen. Bernie Sanders (I-VT), Sen. Elizabeth Warren (D-MA), and Rep. Jan Schakowsky (D-IL), this bill would ensure that all benefits will be paid in full and on time for the next 75 years and beyond by requiring those with incomes of $250,000 or more to pay into Social Security on all of their income, earned and unearned, above that $250,000 threshold.  

Additionally, the Social Security Expansion Act would increase benefits by $200 per month across the board; update and increase the minimum benefit to 125 percent of poverty, to ensure that no one retires into poverty after a lifetime of work; and switch to the more accurate consumer price index for the elderly (CPI-E), that more accurately reflects seniors’ spending.