Q & A
How does the government handle Social Security funding?
Complete Question: I know that Social Security is paid for by taxes from employment. But what happens after that? With all the hype I’ve been hearing about the country running out of social security funds, I would like to know what happens when my taxes are deducted from my paycheck. Is the money invested? What agency handles the funding?
Answer: The OASDI is a combination of the two Social Security trust funds, which are managed by the Department of Treasury. The Treasury Department acts as the “accountant” by tracking money that comes in and disbursements that go out of the trust funds. They also hold the accumulated assets, which provide automatic spending authority to pay benefits. The OASI Trust Fund pays benefits to retired workers and their families including survivor’s benefits, while the DI Trust Fund pays benefits to disabled workers and their families. In addition, a small portion of these funds are allowed to be used for administrative costs, typically 1-2% of total trust fund expenditures.
As for investing the tax payments that have been received, by law this income must be invested on a daily basis in securities guaranteed as to both principal and interest by the Federal Government. All securities held by the trust funds are “special issues” of the United States Treasury. These securities are only available to the trust funds and special issues can be redeemed at any time at face value. Investment in special issues gives the trust funds the same flexibility as holding cash. The rate of interest is determined by a formula that was enacted in 1960 and the rate is determined at the end of each month, which is applied to new investments in the following month.