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Do my Social Security contributions earn interest?

Not for you. The money you put into Social Security is a tax on earnings that helps pay for a national retirement and disability benefit. It’s not held in an account in your name, it doesn’t come back to you with interest when you retire, and unused contributions don’t revert to your family when you die (although they may be able to draw survivor benefits if you were receiving or eligible for Social Security payments)​.

Instead, Social Security operates as a pay-as-you-go system. Contributions from today’s workers cover benefits for current retirees and people with disabilities. Any money not needed to pay current beneficiaries remains in Social Security’s trust funds. Younger workers will pay the benefits of today’s wage earners when they retire. 

Not like a retirement account

So while Social Security exists to support Americans financially in their later years, it isn’t a vehicle to save money for retirement, like an IRA or 401(k). It’s a guaranteed benefit more akin to insurance, something the government recognized in giving the program its formal name: Old Age, Survivors and Disability Insurance (or OASDI, as it appears on your paystub).​

Like insurance premiums that go into a pool of money to pay fellow policyholders when they make a claim, the payroll and self-employment taxes that finance Social Security go toward benefit payments for today’s recipients. As with insurance, you or your family will draw payments from the pool when you qualify for them and file an application.

Social Security tax payments do earn interest collectively: They are invested in special Treasury bonds that are guaranteed by the federal government and pay a market-rate interest, which goes back into the pool that pays out benefits. But your contributions don’t go into a personal account that earns interest for you.​​

Benefits are progressive

Because of the way the program is structured, the amount you’ll get from Social Security is not limited to what you put in. Your retirement benefit amount is calculated from your career earnings, using an inflation-adjusted average of your monthly income in your 35 highest-earning years. And you’ll continue to receive it as long as you live.

People aren’t guaranteed to get back what they paid into Social Security and Medicare, which the same payroll tax partially finances. Whether you do will depend on your earnings during your lifetime and on how long you live after you start collecting benefits. Social Security benefits are progressive, meaning lower-income workers get a higher benefit relative to their earnings. ​

Most households do receive more in total benefits than they pay into the programs, especially those at low or medium income levels, according to the Urban Institute. The nonprofit research organization produces an annual report on the subject, estimating lifetime contributions and benefits for a range of hypothetical workers. (The calculations do not include disability benefit payments or the share of payroll taxes that pay for them.)​

For example, the institute’s 2022 study has these estimates for workers who turned 65 in 2020.

  • A single man who earned an average income and reaches average life expectancy will pay $405,000 into Social Security and Medicare and receive $573,000 in benefits.
  • A single woman in that situation will pay $405,000 into the programs and receive $646,000 in benefits, because women live longer. 
  • A married couple consisting of an average earner and a low earner will pay a combined $586,000 and receive $1.1 million in benefits.

These projections are subject to a host of variables, including the impact of annual cost-of-living adjustments (COLAs) and Social Security's overall fiscal health.

The 2022 annual report from Social Security's trustees estimates that without legislative changes in how the program is financed, the current surplus in the trust funds will run out by 2035. In that case, the SSA will only be able to pay out what it takes in each year in taxes and benefits would be about 20 percent lower, significantly altering the lifetime-benefit calculus. AARP is advocating for efforts to safeguard Social Security's finances.

Keep in mind​

If you want to know at a glance how much you’ve paid so far in Social Security and Medicare taxes, create an online My Social Security account and consult your Social Security statement, which tracks that information and provides estimates of your future benefits.

Updated July 15, 2022