Social Security Trust Fund Investment Practices
Updated May 10, 2023
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 over 66 million beneficiaries
made from the general fund, an equal amount of U.S.
in 2023.
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 183
million workers (94% of all workers in 2023) are covered
•
Social Security is a self-financing program, with 94.6% of its
by Social Security. Covered workers and their employers
total 2022 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 $2.83 tril ion in U.S. Treasury
these dedicated tax revenues represent 94.6% of Social
securities in 2022—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 2022 was 2.4%; the average interest rate
within the U.S. Treasury that (1) track income and
on new special issues was 3.0%.
expenditures for the program and (2) hold the accumulated
•
The trust funds earned approximately $66.4 bil ion in
assets for the program. As such, they represent funds
interest in 2022, representing 5.4% of Social Security’s total
dedicated to pay current and future Social Security benefits.
income.
(There are two separate trust funds: the Old-Age and
Survivors Insurance [OASI] Trust Fund and the Disability
Insurance [DI] Trust Fund. They are referred to here on a
The holdings of the Social Security trust funds represent the
combined basis as the Social Security trust funds.)
amount of money that the U.S. Treasury’s general fund
owes to the Social Security trust funds. There is no separate
As required by law, Social Security tax revenues are
pool of cash set aside for Social Security purposes.
invested in interest-bearing U.S. government obligations.
However, that is not to say that the holdings of the Social
Currently, the trust funds hold about $2.83 trillion in U.S.
Security trust funds are not “real” assets. The U.S.
Treasury securities. In 2022, the trust fund holdings earned
government obligations purchased by the trust funds are
approximately $66.4 billion in interest, representing 5.4%
backed by the full faith and credit of the United States and
of Social Security’s total income.
guaranteed with respect to both principal and interest by the
United States, as specified in Section 201(d) of the Social
In the past, attention has focused on alternative investment
Security Act (42 U.S.C. §401(d)).
practices in an effort to increase the interest earnings of the
trust funds, among other goals. This In Focus explains
Stated another way, the holdings of the Social Security trust
current Social Security trust fund investment practices.
funds (the asset reserves) represent the accumulated total of
surplus Social Security tax revenues collected for the
The Trust Funds
program over the years, plus the interest earned on
Section 201 of the Social Security Act (42 U.S.C. §401)
securities held by the trust funds. Over its 88-year history,
requires the managing trustee of the Social Security trust
the program has collected $26.40 trillion and paid out
funds (the Secretary of the Treasury) to invest Social
$23.57 trillion, leaving trust fund reserves of about $2.83
Security tax revenues in special “nonmarketable” federal
trillion available for future program spending. As long as
public-debt obligations called special issues (i.e., securities
the trust funds have a sufficient balance, they represent the
available only to the trust funds, not to the general public).
authority and an obligation for the U.S. Treasury to issue
The Secretary may invest in marketable federal securities,
benefit payments scheduled under current law.
which are available to the general public, if that is
determined to be “in the public interest.”
From 2010 through 2020, Social Security relied on interest
income to supplement current tax revenues to pay benefits
The Social Security tax revenues that are exchanged for the
scheduled under current law. In 2021 and 2022, the
U.S. government obligations go into the general fund of the
program needed to redeem asset reserves held in the trust
funds. Those reserves are projected to be depleted in 2034
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Social Security Trust Fund Investment Practices
under the intermediate assumptions of the Board of
The maturity dates of new special-issue securities are set by
Trustees’. Following depletion of trust fund reserves, the
a standardized procedure. Revenues are invested
program would operate with current tax revenues; however,
immediately in short-term issues called certificates of
they are projected to cover only about three-fourths of
indebtedness, which mature on the next June 30. On June
scheduled benefit payments through 2097.
30 of each year, certificates of indebtedness that have not
been redeemed are reinvested in longer-term special-issue
Investment Guidelines
bonds. Generally, the maturities of the bonds range from 1
Section 201 of the Social Security Act (42 U.S.C. §401)
to 15 years; the goal is to have about one-fifteenth of them
provides the following guidelines for trust fund investment:
mature each year, depending on the needs of the trust funds.
•
However, since the OASI trust fund is projected to be
Funds not immediately in demand for benefits or
depleted within 12 years, its bonds are spread evenly over
administrative expenses are to be invested in interest-
the 12-year period 2023-2034.
bearing obligations guaranteed as to both principal and
interest by the United States.
Issues
• Obligations are to be purchased at the issue price or at
Some policymakers have questioned whether the current
the market price for outstanding obligations.
investment practices have constrained the trust funds’
•
earnings but various advisory councils and congressional
The Managing Trustee of the Social Security trust funds
committees have generally endorsed the practices over the
(the Secretary of the Treasury) is required to invest in
special “nonmarketable” federal public
years. These practices have been justified as a way to
-debt
ensure safety of principal and stability of interest and to
obligations—special issues to the trust funds that are not
avoid intrusion into private markets. These practices have
available to the general public—except when the
also been regarded as a way to avoid the political influences
Secretary determines that the purchase of marketable
that would be inherent in investing outside the U.S.
federal securities is “in the public interest.”
government. In general, the goal has been to place the trust
• Special issues shall have maturities fixed with due
funds in the same position as any long-term investor
regard for the needs of the trust funds and will pay a rate
seeking a safe rate of return by investing in U.S. securities,
of interest, calculated at the time of issue, equal to the
and neither advantage nor disadvantage the trust funds
average market yield on all marketable interest-bearing
relative to these investors or other parts of the government.
obligations of the United States that are not due or
callable (redeemable) for at least four years.
Policymakers interested in ways to potentially increase
•
interest income to the trust funds (or, as in past years, to
Marketable federal securities purchased by the trust
prevent any surplus Social Security tax revenues from being
funds may be sold at the market price. Special issue
used for other, non-Social Security spending purposes) have
obligations may be redeemed at par plus accrued interest
introduced legislation to alter trust fund investment
(without penalty for redemption before maturity).
practices. Some past proposals would have provided for the
(Investment in special issues gives the trust funds the
investment of a portion of the trust fund reserves in
same flexibility as holding cash.)
equities.
The Department of the Treasury has determined that the
purchase of marketable federal securities (i.e., public
The Social Security Administration’s OCACT provides
issues) would be in the public interest only when it might
estimates of how various provisions to alter trust fund
serve to stabilize the market for Treasury issues. Because an
investment practices would affect the financial status of the
“unstable market” would be characterized by falling bond
Social Security trust funds. See Individual Changes
prices, purchases of marketable federal securities at these
Modifying Social Security, Category G: Investment in
times would appear to be advantageous for the trust funds.
Marketable Securities, at https://www.ssa.gov/OACT/
In practice, however, open market purchases have been
solvency/provisions/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 2022, interest
Questions about the Social Security Trust Funds
earnings totaled approximately $66.4 billion (5.4% of total
income for the Social Security trust funds). The effective
Social Security Trust Fund Cash Flows and Reserves, by
interest rate earned on all obligations held by the trust funds
David Pattison, Social Security Bulletin, vol. 75, no. 1,
in 2022 was 2.4%. (The effective rate reflects the entire
February 2015
portfolio of securities held by the trust funds.) The average
interest rate earned on new special issues in 2022 was 3.0%.
SSA, Office of the Chief Actuary, Actuarial Note 142,
(Social Security Administration, Office of the Chief
Social Security Trust Fund Investment Policies and
Actuary (OCACT), Average and Effective Interest Rates, at
Practices, by Jeffrey L. Kunkel, January 1999
https://www.ssa.gov/OACT/ProgData/
annualinterestrates.html.)
Barry F. Huston, Analyst Social Policy
IF10564
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Social Security Trust Fund Investment Practices
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