What is the Social Security Trust Fund?

In the United States, the Social Security Trust Fund is the mechanism by which taxes raised for the purpose of Social Security expenses are accounted for. The fund is mainly a method for keeping track of collections, and there is no dedicated money that stays into a specific account for paying out later. It simply keeps track of the money that is raised.

Though many Americans may think there is a substantial amount of money being collected and saved resulting from the Federal Insurance Contributions Act (FICA), this is not the case. This money is spent on those who are already drawing money from Social Security or used for other programs. In that way, this is sometimes referred to as "raiding" the Social Security Trust Fund.

As an accounting mechanism, the Social Security Trust Fund is actually split into two trust funds. One is called Old-Age and Survivors Insurance (OASI), which the US government uses to pay benefits to retirees and their survivors. The second fund goes to disability insurance, which is used to pay the benefits for those who are disabled.

Instead of compiling and holding on to the money, the fund actually buys U.S. Treasury bonds. In essence, because both the Social Security Trust Fund and U.S. Treasury are owned by the US government, it is, in fact, borrowing from itself. This remains a secured fund as long as the government does not default on the loans.

Currently, more money is collected from FICA taxes than is paid out in benefits, so the Social Security Trust Fund runs at a surplus. This is expected to change over time, however, and some say that, by the year 2017, it will no longer have a surplus. While the fund has accumulated enough reserves, at least on paper, to remain solvent throughout much of the 21st century, there are administrators and politicians both who have concerns about its future.

A commission chaired by former Federal Reserve Chair Alan Greenspan recommended raising taxes to continue to keep the Social Security Trust Fund in good health. Others have suggested the government stop using FICA taxes for other purposes and make it a true savings fund. These solutions would likely both have the same result: to raise taxes. If the government stopped using money from the fund, it would either have to raise taxes, borrow from other sources, or significantly cut some current programs.