Everything You Need to Know About the Social Security Trust Fund

March 01, 2023

The Old Age and Survivors Insurance (OASI) benefits, known as Social Security, pay retirement and survivors benefits through The Social Security Trust Fund. The U.S. Social Security Administration oversees this fund. Social Security (SS) taxes and other income are deposited into the trust fund accounts, and SS benefits payout from them. The only purpose for which these trust funds are used is to pay benefits and program administrative costs.

The Trust Fund’s Problem

The fund faces insolvency with fewer SS payroll taxes collected due to a declining workforce and longer life expectancy. With less collected, The Social Security Administration has been spending more on benefits than bringing in from payroll taxes.

Initially designed for retired workers and survivors, the program's funds depletion date is 2035. The Social Security Administration anticipates paying only 75% to 78% of benefits to retirees and beneficiaries at that time. The Social Security Administration continues to sell Treasury bonds to keep the fund afloat. However, the fund will significantly deplete in the next twelve years. Some proposed solutions from the fund's board of trustees include:

  • Increasing payroll taxes to help fund the Social Security program.
  • Reducing or eliminating annual increases in Social Security payments.
  • Increasing the full retirement age from 67 to 69.
  • Increasing the required number of years participants must work before receiving Social Security retirement benefits.

The 2023 OASDI tax rate is 6.2% each for employers and employees; self-employed individuals pay the full 12.8% themselves. The tax is collected on wages up to $160,200.

A poll conducted by Gallup found that 38 percent of working U.S. adults thought Social Security would be a significant source of their income. Today, 57 percent of retirees rely on Social Security as their primary source of income. Here are additional strategies to help you get the most out of your Social Security Retirement Benefits:

  • Work 35 or more years and earn a higher salary year after year.
  • Do not claim Social Security retirement benefits until your full retirement age.
  • Use a Social Security spousal benefits strategy.
  • Maximize Social Security survivor benefits and claim survivor benefits for your children.
  • Estimate your longevity before taking Social Security Retirement benefits.

Those retiring after 2035 must rely more on other retirement savings and less on their Social Security retirement benefits. Here are some ways to help you save for retirement:

  • Participate in your employer's retirement savings plan and contribute enough to receive the match.
  • Automate your retirement savings contributions to increase yearly to maximize your savings.
  • Contribute to a Traditional or Roth IRA and invest in stocks, bonds, real estate, mutual funds, and other strategies in addition to your employer’s retirement savings plan.
  • Work with a financial professional to help you plan for retirement and evaluate your current retirement savings, goals, and timeline.

Whether Social Security retirement benefits are available at the current levels or not, planning for your future is essential.

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal.  Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

Investments in real estate may be subject to a higher degree of market risk because of concentration in a specific industry, sector or geographical sector. Other risks can include, but are not limited to, declines in the value of real estate, potential illiquidity, risks related to general and economic conditions, stage of development, and defaults by borrower.

Investing in mutual funds involves risk, including possible loss of principal.  The funds value will fluctuate with market conditions and may not achieve its investment objective. Upon redemption, the value of fund shares may be worth more or less than their original cost.

This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by Fresh Finance.

LPL Tracking # 1-05359383

Sources:

https://www.ssa.gov/news/press/factsheets/WhatAreTheTrust.htm

https://www.ssa.gov/policy/trust-funds-summary.html

https://news.gallup.com/poll/350048/retirees-experience-differs-nonretirees-outlook.aspx