It is possible that you might not be aware that Social Security is a self-financing program with the ability to provide benefits to about 65 million people, but it is even more possible that you may be unaware of how Social Security invests in its two different trust funds.
There are two different Social Security trust funds, one for retirement benefits and the other for disability. A couple of quick points regarding investment in the trust funds. First, in 2020, Social Security received more than 93 percent of its total income with dedicated tax revenues. The revenues that Social Security receives are then invested in interest-bearing U.S. government obligations held by the Social Security trust funds, which is required by law. The rest of the blog provides more details of how the trust funds are managed.
Below is a description from the Congressional Research Service that explains how the government invests in the Social Security trust funds.
Social Security operates with a trust fund financing mechanism. The Social Security trust funds are accounts within the U.S. Treasury that(1) track income and expenditures for the program and (2) hold the accumulated assets for the program. As such, they represent funds 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 Insurance [DI]Trust Fund. They are referred to here on a combined basis as the Social Security trust funds.)
As required by law, Social Security tax revenues are invested in interest-bearing U.S. government obligations. Currently, the trust funds hold about $2.9trillion in U.S. Treasury securities. In 2020, the trust fund holdings earned approximately $76 billion in interest, representing 6.8% of Social Security’s total income.
In the past, attention has focused on alternative investment practices in an effort to increase the interest earnings of the trust funds, among other goals. This In Focus explains current Social Security trust fund investment practices.
