Social Security: The Trust Funds and Interest Income
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November 15, 2022
Social Security: The Trust Funds and Interest Income
Background
revenues and the interest earned on those excess revenues.
The Old-Age, Survivors, and Disability Insurance (OASDI)
The Board of Trustees oversees the Social Security trust
program, or Social Security, is a self-financing social
funds and is required by law to report to Congress annually
insurance program that protects workers and their families
on the financial status of the trust funds.
against loss of income due to old age, death, or disability.
Workers become eligible for future benefits by working in
From 1983 through 2009, Social Security operated with a
Social Security–covered employment. (About 94% of
cash surplus (i.e., tax revenues exceeded expenses). The
workers in paid employment and self-employment are
cash surplus is the shaded blue area, as shown in Figure 1.
covered under Social Security.) Given that Social Security
covers approximately 182 million workers and pays
Figure 1. Social Security Tax Revenues and Expenses
benefits to over 65 million beneficiaries, it is the federal
1980-2034 (in Billions of Current Dollars)
government’s single largest program.
The financial status of Social Security determines the
program’s ability to pay fully scheduled benefits on time—
that is, the ability to provide monthly payments to current
and future beneficiaries. At a basic level, the financial
status of Social Security is simply the relationship among
revenues, expenses, and the holdings in the Social Security
trust funds. This report focuses on the trust funds and
interest income, a decreasing source of income for the
program.
Sources of Income
Source: CRS.
Social Security is primarily financed through a payroll tax
Notes: Projections use the trustees’ 2022 intermediate projections.
where employers and workers each pay 6.2% of covered
earnings up to an annual limit ($147,000 in 2022). Payroll
Each of those year’s cash surpluses were invested in
taxes accounted for 90.1% of program income in 2021.
government securities and earned interest. Figure 2 shows
Additionally, some beneficiaries are subjected to federal
how those cash surpluses (i.e., trust fund asset reserves) and
income tax on a portion of their Social Security benefits.
the earned interest grew over time. However, Figure 2 also
Taxation of benefits accounted for 3.5% of program income
shows how the value of the trust funds decreased in 2021.
in 2021. The payroll tax and income from taxation of
Figure 2 also shows the projected value of the trust funds
benefits are commonly referred to as the program’s tax
decreasing to zero by the end of 2035 (under the Board of
revenues or non-interest income. These tax revenues are
Trustees’ 2022 intermediate assumptions, its best guess of
used to pay monthly Social Security benefits.
future experience).
A third source of income is interest income. Excess
Figure 2. Social Security Trust Fund Asset Reserves
revenues that are not needed to immediately pay benefits
1980-2034 (in Billions of Current Dollars)
are credited to the Social Security trust funds. As required
by law, any excess revenues are invested in interest-bearing
U.S. Treasury securities held in trust funds. This transaction
loans money to the “rest of government.” Interest on trust
fund asset reserves accounted for 6.4% of program income
in 2021. The average interest rate on asset reserves (i.e.,
effective interest rate) was 2.5% in 2021.
The Trust Funds
The trust funds provide the program with a means to track
revenues and expenses. Additionally, the trust funds
provide a means for the Social Security program to hold
accumulated assets—that is, money not immediately
needed to pay benefits—for the payment of future benefits.
Source: CRS.
At the end of 2021, the trust fund balance was $2,852
Notes: Projections use the trustees’ 2022 intermediate projections.
billion. This balance represents the accumulation of excess
https://crsreports.congress.gov
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Social Security: The Trust Funds and Interest Income
Cash Deficits and Annual Deficits
Resources”). Once all the assets have been depleted, the
Since 2010, Social Security has operated with cash deficits
program would no longer earn interest income.
(i.e., expenses exceed tax revenues). Under the intermediate
assumptions, the trustees projected cash deficits for the
Figure 4. Social Security Trust Fund Interest Income
remainder of the 75-year projection period (see Figure 1).
1980-2034 (in Billions of Current Dollars)
However, from 2010 through 2020, the program still ran
annual surpluses where total income (i.e., tax revenues plus
interest) exceeded expenses (see Figure 3). During this
time, the trust funds continued to increase in value because
of the interest earned on the trust fund asset reserves.
Figure 3. Social Security Total Revenues and Expenses
1980-2034 (in Billions of Current Dollars)
Source: CRS.
Notes: Projections use the trustees’ 2022 intermediate projections.
The trust funds are commonly thought of as the amount of
money that the “rest of government” owes Social Security.
In 2035, once all asset reserves have been redeemed, the
rest of government would have paid back Social Security
Source: CRS.
with interest. The trust funds would no longer hold any
Notes: Projections use the trustees’ 2022 intermediate projections.
accumulated assets but would continue to track program
income and expenditures.
In 2021, Social Security experienced its first annual deficit
since 1982. Said differently, in 2021 tax revenues plus
What Does This Mean?
interest income could not support total expenses. Thus, in
Social Security monthly benefit payments are financed
2021, the redemption of asset reserves held in the trust
primarily by tax revenues. For many years—since 2010—
funds provided the additional $56 billion that was needed to
tax revenues alone were not sufficient to cover monthly
pay scheduled benefits. As shown in Figure 3, growing
benefit payments. However, tax revenues augmented by the
annual deficits are projected through 2035—the projected
trust funds (i.e., asset reserves and interest) are projected to
year of asset reserve exhaustion.
be able to cover monthly benefit payments until sometime
in 2035. At the time of trust fund depletion, with no assets
Peak Trust Fund Value and Decreasing
to redeem or interest income, tax revenues are projected to
Interest Income
support about 80% of monthly benefit payments. That is,
The redemption of asset reserves in 2021 marks the first
absent changes, beneficiaries would face a de facto cut in
time since 1982 that reserves were needed to pay benefits.
benefits of about 20%. (See CRS In Focus IF12231, Social
This change could be important to lawmakers for two
Security: Scheduled Versus Payable Benefits.)
reasons: (1) It indicates that the combined trust fund
balance is past its peak value and (2) the projections of
Policymakers have a wide range of options to address the
ongoing annual deficits would require further redemption of
projected financial shortfall. Generally speaking, these
asset reserves. This means some amount of trust fund assets
policy options are categorized as either revenue-increasing
would be redeemed each year until the projected depletion
(e.g., payroll tax rate increase) or cost-reducing (e.g., an
date (2035). The projected rising expenses of the program
increase in the eligibility age) or a combination of the
suggest that successively more assets would be redeemed
above. The trustees’ latest projections show that as time
each year until depletion. The trust funds grew from 1983
elapses, the magnitude of the changes needed to maintain
through 2020 (38 years). Under intermediate assumptions,
Social Security solvency increases.
the entirety of the trust funds balance would be redeemed
from 2021 through sometime in 2035 (about 14 years).
Additional Resources
CRS Report RL33514, Social Security: What Would
This means that as the trust funds balance decreases each
Happen If the Trust Funds Ran Out?
year, the amount of interest earned is projected to become
successively smaller each year as well (see Figure 4). The
Social Security Administration, Office of the Chief
trust funds would not gain from compounding interest
Actuary, “Average and Effective Interest Rates,”
income as in previous years. Interest income is a function of
https://www.ssa.gov/oact/progdata/annualinterestrates.html.
the principal (i.e., trust fund balance) on which interest is
earned and the effective interest rate. The trust fund balance
Barry F. Huston, Analyst Social Policy
is projected to decrease by increasing amounts, and the
effective interest rates are relatively low (see “Additional
IF12248
https://crsreports.congress.gov
Social Security: The Trust Funds and Interest Income
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF12248 · VERSION 1 · NEW
November 15, 2022
Social Security: The Trust Funds and Interest Income
Background
revenues and the interest earned on those excess revenues.
The Old-Age, Survivors, and Disability Insurance (OASDI)
The Board of Trustees oversees the Social Security trust
program, or Social Security, is a self-financing social
funds and is required by law to report to Congress annually
insurance program that protects workers and their families
on the financial status of the trust funds.
against loss of income due to old age, death, or disability.
Workers become eligible for future benefits by working in
From 1983 through 2009, Social Security operated with a
Social Security–covered employment. (About 94% of
cash surplus (i.e., tax revenues exceeded expenses). The
workers in paid employment and self-employment are
cash surplus is the shaded blue area, as shown in Figure 1.
covered under Social Security.) Given that Social Security
covers approximately 182 million workers and pays
Figure 1. Social Security Tax Revenues and Expenses
benefits to over 65 million beneficiaries, it is the federal
1980-2034 (in Billions of Current Dollars)
government’s single largest program.
The financial status of Social Security determines the
program’s ability to pay fully scheduled benefits on time—
that is, the ability to provide monthly payments to current
and future beneficiaries. At a basic level, the financial
status of Social Security is simply the relationship among
revenues, expenses, and the holdings in the Social Security
trust funds. This report focuses on the trust funds and
interest income, a decreasing source of income for the
program.
Sources of Income
Source: CRS.
Social Security is primarily financed through a payroll tax
Notes: Projections use the trustees’ 2022 intermediate projections.
where employers and workers each pay 6.2% of covered
earnings up to an annual limit ($147,000 in 2022). Payroll
Each of those year’s cash surpluses were invested in
taxes accounted for 90.1% of program income in 2021.
government securities and earned interest. Figure 2 shows
Additionally, some beneficiaries are subjected to federal
how those cash surpluses (i.e., trust fund asset reserves) and
income tax on a portion of their Social Security benefits.
the earned interest grew over time. However, Figure 2 also
Taxation of benefits accounted for 3.5% of program income
shows how the value of the trust funds decreased in 2021.
in 2021. The payroll tax and income from taxation of
Figure 2 also shows the projected value of the trust funds
benefits are commonly referred to as the program’s tax
decreasing to zero by the end of 2035 (under the Board of
revenues or non-interest income. These tax revenues are
Trustees’ 2022 intermediate assumptions, its best guess of
used to pay monthly Social Security benefits.
future experience).
A third source of income is interest income. Excess
Figure 2. Social Security Trust Fund Asset Reserves
revenues that are not needed to immediately pay benefits
1980-2034 (in Billions of Current Dollars)
are credited to the Social Security trust funds. As required
by law, any excess revenues are invested in interest-bearing
U.S. Treasury securities held in trust funds. This transaction
loans money to the “rest of government.” Interest on trust
fund asset reserves accounted for 6.4% of program income
in 2021. The average interest rate on asset reserves (i.e.,
effective interest rate) was 2.5% in 2021.
The Trust Funds
The trust funds provide the program with a means to track
revenues and expenses. Additionally, the trust funds
provide a means for the Social Security program to hold
accumulated assets—that is, money not immediately
needed to pay benefits—for the payment of future benefits.
Source: CRS.
At the end of 2021, the trust fund balance was $2,852
Notes: Projections use the trustees’ 2022 intermediate projections.
billion. This balance represents the accumulation of excess
https://crsreports.congress.gov
link to page 1 link to page 2 link to page 2 link to page 2 link to page 2 link to page 2
Social Security: The Trust Funds and Interest Income
Cash Deficits and Annual Deficits
Resources”). Once all the assets have been depleted, the
Since 2010, Social Security has operated with cash deficits
program would no longer earn interest income.
(i.e., expenses exceed tax revenues). Under the intermediate
assumptions, the trustees projected cash deficits for the
Figure 4. Social Security Trust Fund Interest Income
remainder of the 75-year projection period (see Figure 1).
1980-2034 (in Billions of Current Dollars)
However, from 2010 through 2020, the program still ran
annual surpluses where total income (i.e., tax revenues plus
interest) exceeded expenses (see Figure 3). During this
time, the trust funds continued to increase in value because
of the interest earned on the trust fund asset reserves.
Figure 3. Social Security Total Revenues and Expenses
1980-2034 (in Billions of Current Dollars)
Source: CRS.
Notes: Projections use the trustees’ 2022 intermediate projections.
The trust funds are commonly thought of as the amount of
money that the “rest of government” owes Social Security.
In 2035, once all asset reserves have been redeemed, the
rest of government would have paid back Social Security
Source: CRS.
with interest. The trust funds would no longer hold any
Notes: Projections use the trustees’ 2022 intermediate projections.
accumulated assets but would continue to track program
income and expenditures.
In 2021, Social Security experienced its first annual deficit
since 1982. Said differently, in 2021 tax revenues plus
What Does This Mean?
interest income could not support total expenses. Thus, in
Social Security monthly benefit payments are financed
2021, the redemption of asset reserves held in the trust
primarily by tax revenues. For many years—since 2010—
funds provided the additional $56 billion that was needed to
tax revenues alone were not sufficient to cover monthly
pay scheduled benefits. As shown in Figure 3, growing
benefit payments. However, tax revenues augmented by the
annual deficits are projected through 2035—the projected
trust funds (i.e., asset reserves and interest) are projected to
year of asset reserve exhaustion.
be able to cover monthly benefit payments until sometime
in 2035. At the time of trust fund depletion, with no assets
Peak Trust Fund Value and Decreasing
to redeem or interest income, tax revenues are projected to
Interest Income
support about 80% of monthly benefit payments. That is,
The redemption of asset reserves in 2021 marks the first
absent changes, beneficiaries would face a de facto cut in
time since 1982 that reserves were needed to pay benefits.
benefits of about 20%. (See CRS In Focus IF12231, Social
This change could be important to lawmakers for two
Security: Scheduled Versus Payable Benefits.)
reasons: (1) It indicates that the combined trust fund
balance is past its peak value and (2) the projections of
Policymakers have a wide range of options to address the
ongoing annual deficits would require further redemption of
projected financial shortfall. Generally speaking, these
asset reserves. This means some amount of trust fund assets
policy options are categorized as either revenue-increasing
would be redeemed each year until the projected depletion
(e.g., payroll tax rate increase) or cost-reducing (e.g., an
date (2035). The projected rising expenses of the program
increase in the eligibility age) or a combination of the
suggest that successively more assets would be redeemed
above. The trustees’ latest projections show that as time
each year until depletion. The trust funds grew from 1983
elapses, the magnitude of the changes needed to maintain
through 2020 (38 years). Under intermediate assumptions,
Social Security solvency increases.
the entirety of the trust funds balance would be redeemed
from 2021 through sometime in 2035 (about 14 years).
Additional Resources
CRS Report RL33514, Social Security: What Would
This means that as the trust funds balance decreases each
Happen If the Trust Funds Ran Out?
year, the amount of interest earned is projected to become
successively smaller each year as well (see Figure 4). The
Social Security Administration, Office of the Chief
trust funds would not gain from compounding interest
Actuary, “Average and Effective Interest Rates,”
income as in previous years. Interest income is a function of
https://www.ssa.gov/oact/progdata/annualinterestrates.html.
the principal (i.e., trust fund balance) on which interest is
earned and the effective interest rate. The trust fund balance
Barry F. Huston, Analyst Social Policy
is projected to decrease by increasing amounts, and the
effective interest rates are relatively low (see “Additional
IF12248
https://crsreports.congress.gov
Social Security: The Trust Funds and Interest Income
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF12248 · VERSION 1 · NEW