The Financing of Social Security
Fact 1: The Social Security trust funds are a sure thing.
Many people are under the impression that Social Security is broken, unable to fulfill its promise to the people who have contributed to it over the years. Well, the fact is, the Social Security trust funds aren't just sound, they're building a surplus. Today, that surplus is more than $1.4 trillion and growing. That's a lot of money. But it's necessary as we prepare for the boomers. Back in the early 1980s, the President and Congress took the first steps to strengthen Social Security and get it ready for the future. The stockpile has been building, and it will continue to grow well past the time the first boomers reach retirement age.
How is that possible? Today, 65 million boomers are paying into the system and, along with about 89 million other employed Americans, are helping build that reserve. Add to that the nearly one in three retired Americans who are contributing to the trust funds by paying taxes on their Social Security. It all adds up. The income in the Social Security trust funds is earmarked to pay for benefits and administrative costs. Right now, there is more money coming in than is going out. For example, in 2002, Social Security's income was $627.1 billion. It paid out $461.6 billion, leaving a surplus of about $165.5 billion. That $165.5 billion went into the trust funds.
Fact 2: Financing Social Security isn't the toughest thing government bonds have ever done.
Some people who want to scrap Social Security call the government's investment in Treasury Bonds an accounting trick. Others think it's just good, thoughtful, and conservative investing.
It's natural that people are confused and wonder what these trust funds are and where the money goes. Well, here's how it works, plain and simple: the Social Security trust funds buy interest-earning special Treasury Bonds — similar to the government bonds pension funds and private investors buy. That's easy to understand. Last year, the Trustees invested what was a $165.5 billion Social Security surplus, buying special Treasury Bonds that are earning interest in the trust funds. It brought the total holding of the trust funds to more than $1.4 trillion. When we need to use them, the Treasury Bonds will be cashed.
These bonds aren't only safe; they're earning approximately 7 percent in annual interest. Last year, about 13 percent of Social Security's total income — that's nearly $80 billion — was just interest alone. There you have it. For over two hundred years, in good times and in bad, these government bonds have paid off.
Fact 3: We can close the gap in the trust funds.
The problem isn't as big as you might have heard. Without any kind of change at all, Social Security will do just what it's been doing — paying 100 percent of promised benefits — until 2040. After that, if nothing is done, Social Security will still be able to pay nearly three-quarters of promised benefits. Obviously, that's not acceptable. Getting three-quarters wouldn't be okay today and it won't be in the 2040s either. That's why this is such an important issue. But we need to start considering changes now; thanks to the time we have, we can close the gap.
