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What does “The Fed” have to do with Social Security?
The Federal Reserve (Fed) is in charge of the nation’s monetary policy. Most folks pay scant attention, though the media reports when the Fed raises interest rates (tightening the money supply) to dampen inflation and slow economic growth a bit. It also reports when the Fed lowers rates to create a stimulus to a floundering economy. In this piece Sean Williams mentions how Social Security’s financial health is influenced by three factors: immigration (generally a net positive), fertility rates, and The Fed.
Regarding the latter factor, the Social Security Administration is required by law to invest excess revenue in special-issue bonds, meaning Social Security is loaning out its excess cash to the federal government in exchange for Treasury bonds that pay a set interest rate over a defined period of time. Since the Fed is now in a tightening cycle, the yields on these government bonds should rise, resulting in more interest income.
The Social Security Administration reports $2.89 trillion in excess cash currently in its investment holdings that is earning nearly 2.9% per year. It is important to keep in mind, however, that the payroll tax brings in the most income to the program; still, interest income was about 8.5% of all revenue collected in 2017. Full article here.
This posting is presented for informational purposes only and does not represent legal or financial guidance. Any opinions or interpretations presented are either those of the original author or, in the case of articles authored by the AMAC Foundation, are the opinions of AMAC Foundation staff, originally trained and accredited by the National Social Security Association (NSSA) and certified via the AMAC Foundation. Any links included in the article are valid on the posted date; socialsecurityreport.org cannot guarantee the duration of the links’ validity. NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (https://amacfoundation.org/services/) or email us at ssadvisor@amacfoundation.org. Because we are a non-profit organization, there is no charge for these services.