Updated September 2, 2021
Social Security Trust Fund Investment Practices
Background
U.S. Treasury, and they are indistinguishable from all other
Social Security is a self-financing program that provides
revenues in the general fund. Social Security benefits and
monthly cash benefits to retired or disabled workers, and to
administrative expenses are also paid from the general fund
the eligible family members of retired, disabled, or
of the U.S. Treasury. When Social Security payments are
deceased workers. There are about 65 million beneficiaries
made from the general fund, an equal amount of U.S.
in 2021.
government obligations are redeemed from the Social
Security trust funds.
Workers gain benefit eligibility for themselves and their
family members by working in jobs covered by Social
Key Points
Security, among other requirements. An estimated 176
million workers (94% of all workers in 2021) are covered
Social Security is a self-financing program, with 93.2% of its
by Social Security. Covered workers and their employers
total 2020 income from dedicated tax revenues.
must pay Social Security payroll taxes , which are the
Social Security tax revenues are invested in interest-bearing
program’s primary source of income. The program also
U.S. government obligations held by the Social Security
receives income from the federal income taxes that some
trust funds, as required by law.
beneficiaries pay on a portion of their benefits. Together,
Trust fund holdings—about $2.9 tril ion in U.S. Treasury
these dedicated tax revenues represent 93.2% of Social
securities in 2020—represent funds dedicated to pay
Security’s total income.
current and future Social Security benefits.
Social Security operates with a trust fund financing
The effective interest rate earned on al obligations held by
mechanism. The Social Security trust funds are accounts
the trust funds in 2020 was 2.6%; the average interest rate
within the U.S. Treasury that (1) track income and
on new special issues was 1.0%.
expenditures for the program and (2) hold the accumulated
The trust funds earned approximately $76 bil ion in interest
assets for the program. As such, they represent funds
in 2020, representing 6.8% of Social Security’s total income.
dedicated to pay current and future Social Security benefits.
(There are two separate trust funds: the Old-Age and
Survivors Insurance [OASI] Trust Fund and the Disability
The holdings of the Social Security trust funds represent the
Insurance [DI] Trust Fund. They are referred to here on a
amount of money that the U.S. Treasury’s general fund
combined basis as the Social Security trust funds.)
owes to the Social Security trust funds. There is no separate
pool of cash set aside for Social Security purposes.
As required by law, Social Security tax revenues are
However, that is not to say that the holdings of the Social
invested in interest-bearing U.S. government obligations.
Security trust funds are not “real” assets. The U.S.
Currently, the trust funds hold about $2.9 trillion in U.S.
government obligations purchased by the trust funds are
Treasury securities. In 2020, the trust fund holdings earned
backed by the full faith and credit of the United States and
approximately $76 billion in interest, representing 6.8% of
Social Security’s
guaranteed with respect to both principal and interest by the
total income.
United States, as specified in Section 201(d) of the Social
Security Act (42 U.S.C. 401[d]).
In the past, attention has focused on alternative investment
practices in an effort to increase the interest earnings of the
Stated another way, the holdings of the Social Security trust
trust funds, among other goals. This In Focus explains
funds (the asset reserves) represent the accumulated total of
current Social Security trust fund investment practices.
surplus Social Security tax revenues collected for the
The Trust Funds
program over the years, plus the interest earned on
securities held by the trust funds. Over its 86-year history,
Section 201 of the Social Security Act (42 U.S.C. 401)
the program has collected $24.1 trillion and paid out $21.2
requires the managing trustee of the Social Security trust
trillion, leaving trust fund reserves of about $2.9 trillion
funds (the Secretary of the Treasury) to invest Social
available for future program spending. As long as the trust
Security tax revenues in special “nonmarketable” federal
funds have a sufficient balance, they represent the authority
public-debt obligations called special issues (i.e., securities
and an obligation for the U.S. Treasury to issue benefit
available only to the trust funds, not to the general public).
payments scheduled under current law.
The Secretary may invest in marketable federal securities,
which are available to the general public, if that is
Since 2010, Social Security has relied on trust fund reserves
determined to be “in the public interest.”
to supplement current tax revenues to pay benefits
scheduled under current law. Those reserves are projected
The Social Security tax revenues that are exchanged for the
to be depleted in 2034 (the 2021 intermediate assumptions
U.S. government obligations go into the general fund of the
reflect the Board of Trustees’ understanding of Social
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Social Security Trust Fund Investment Practices
Security at the start of 2021). Following depletion of trust
The maturity dates of new special-issue securities are set by
fund reserves, the program would operate with current tax
a standardized procedure. Revenues are invested
revenues; however, they are projected to cover only about
immediately in short-term issues called certificates of
three-fourths of scheduled benefit payments through 2095.
indebtedness, which mature on the next June 30. On June
30 of each year, certificates of indebtedness that have not
Investment Guidelines
been redeemed are reinvested in longer-term special-issue
Section 201 of the Social Security Act (42 U.S.C. 401)
bonds. In general, the maturities of the bonds range from 1
provides the following guidelines for trust fund investment:
to 15 years; the goal is to have about one-fifteenth of them
mature each year, depending on the needs of the trust funds.
Funds not immediately in demand for benefits or
administrative expenses are to be invested in interest-
Issues
bearing obligations guaranteed as to both principal and
Although some policymakers have questioned whether the
interest by the United States.
current investment practices have constrained the trust
funds’
earnings, various advisory councils, congressional
Obligations are to be purchased at the issue price or at
committees, and other groups have generally endorsed the
the market price for outstanding obligations.
practices over the years. These practices have been justified
The Managing Trustee of the Social Security trust funds as a way to ensure safety of principal and stability of
(the Secretary of the Treasury) is required to invest in
interest and to avoid intrusion into private markets. These
special “nonmarketable” federal public-debt
practices have also been regarded as a way to avoid the
obligations—special issues to the trust funds that are not
political influences that would be inherent in investing
available to the general public—except when the
outside the U.S. government. In general, the goal has been
Secretary determines that the purchase of marketable
to place the trust funds in the same position as any long-
federal securities is “in the public interest.”
term investor seeking a safe rate of return by investing in
U.S. securities, and neither advantage nor disadvantage the
Special issues shall have maturities fixed with due
trust funds relative to these investors or other parts of the
regard for the needs of the trust funds and will pay a rate
government.
of interest, calculated at the time of issue, equal to the
average market yield on all marketable interest-bearing
Policymakers interested in ways to potentially increase
obligations of the United States that are not due or
interest income to the trust funds (or, as in past years, to
callable (redeemable) for at least four years.
prevent any surplus Social Security tax revenues from being
Marketable federal securities purchased by the trust
used for other, non-Social Security spending purposes) have
funds may be sold at the market price. Special issue
introduced legislation to alter trust fund investment
obligations may be redeemed at par plus accrued interest
practices. Some past proposals would have provided for the
(without penalty for redemption before maturity).
investment of a portion of the trust fund reserves in
(Investment in special issues gives the trust funds the
equities.
same flexibility as holding cash.)
The Treasury Department has determined that the purchase
The Social Security Administration’s Office of the Chief
of marketable federal securities (i.e., public issues) would
Actuary provides estimates of how various provisions to
be in the public interest only when it might serve to
alter trust fund investment practices would affect the
stabilize the market for Treasury issues. Because an
financial status of the Social Security trust funds. See
“unstable market” would be characterized by falling bond
Individual Changes Modifying Social Security, Category G:
prices, purchases of marketable federal securities at these
Investment in Marketable Securities, at
times would appear to be advantageous for the trust funds.
https://www.ssa.gov/OACT/solvency/provisions/
In practice, however, open market purchases have been
index.html.
rare. Although the trust funds have held public issues in the
past, they currently hold special issues only.
Related Resources
CRS Report RL33028, Social Security: The Trust Funds
Interest earned on the trust fund holdings is credited
semiannually (June 30 and December 31) by issuing
Social Security Administration (SSA), Frequently Asked
additional securities to the trust funds. In calendar year
Questions about the Social Security Trust Funds
(CY) 2020, interest earnings totaled approximately $76
billion (6.8% of total income for the Social Security trust
Social Security Trust Fund Cash Flows and Reserves, by
funds). The effective interest rate earned on all obligations
David Pattison, Social Security Bulletin, vol. 75, no. 1,
held by the trust funds in CY2020 was 2.6%. (The effective
February 2015
rate reflects the entire portfolio of securities held by the
trust funds.) The average interest rate earned on new special
SSA, Office of the Chief Actuary, Actuarial Note 142,
issues in CY2020 was 1.0%. (Social Security
Social Security Trust Fund Investment Policies and
Administration, Office of the Chief Actuary, Average and
Practices, by Jeffrey L. Kunkel, January 1999
Effective Interest Rates, at https://www.ssa.gov/OACT/
ProgData/annualinterestrates.html.)
Barry F. Huston, Analyst in Social Policy
IF10564
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Social Security Trust Fund Investment Practices
Disclaimer
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