In January, retired worker beneficiaries received an average check from the Social Security Administration of $1,976. While that average monthly payment may not sound like much, Social Security helped lift 22.7 million people out of poverty in 2022, including 16.5 million adults age 65 and older.
While Social Security plays an undeniably important role in helping seniors make ends meet, the foundations of this leading retirement program have been shaky for decades. While a combination of factors are responsible for Social Security’s deteriorating financial outlook, blame often points to Congress.
Image source: Getty Images.
In January 1940, the Social Security Administration (SSA) mailed the first benefit checks for retired workers. Since then, Social Security’s board of directors has released an annual report detailing the program’s financial health. This includes taking a closer look at Social Security’s revenues and expenses each year and projecting the future solvency of America’s leading retirement plans.
In the past 40 reports, trustees have warned of shortfalls in long-term funding obligations. In other words, the trustees projected the cumulative revenue received 75 years after the report was issued and determined that, including cost-of-living adjustments (COLA), expenses would easily exceed revenue.
In the 2024 Trustees Report, Social Security’s long-term cash shortfall was estimated at $23.2 trillion through 2098.
Additionally, the trustees called for the expected depletion of the Old Age and Survivors Insurance Trust Fund’s (OASI) asset reserves by 2033. Depleted, or insolvent, monthly expenses are expected to drop by 21%.
The million-dollar question is: “Who or what is to blame for Social Security’s deteriorating financial condition?”
OASI’s asset reserves are expected to be exhausted by 2033.
If you peruse social media message boards for topics/articles about social security, you will usually find Congress being the scapegoat. Specifically, some commenters pointed to the idea that lawmakers stole or raided Social Security trust funds to fund war and other programs and failed to “return the money with interest.”
One problem with popular views about social security is that what is popular is not always right. In this case, the idea that Congress is stealing trillions of dollars from Social Security is completely baseless.
In August 1935, President Franklin Roosevelt signed the Social Security Act into law. The Social Security Act of 1935 provides for a series of provisions and rules that include the treatment of any excess income (asset reserves) received that exceeds the amount of benefit payments and is used to pay the SSA’s administrative costs. cost.
By law, any excess revenue collected by Social Security is invested in specially issued interest-bearing government bonds. U.S. Treasury securities are exceptionally safe and backed by the full trust of the U.S. government.
The most important thing to note is that every penny of these specially issued Treasury bonds is accounted for. In fact, SSA publicly updates each month the total asset reserves of OASI and the Disability Insurance Trust Fund (DI), as well as the average interest rate generated by its asset reserves. As of the end of December 2024, OASI and DI held a total of approximately US$2.721 trillion in asset reserves, with an average return rate of 2.557%.
The idea that Congress “stole” this money is akin to misunderstanding how bank certificates of deposit (CDs) work. If you buy a $10,000 CD at your local bank that yields 4%, your bank isn’t going to store your cash in a vault and let it gather dust. Instead, it will put the money to work through loans to generate a yield of more than 4%. Your money is not stolen by the bank. It’s still fully credited, and the bank can repay you interest and principal at that time.
Likewise, the federal government is not going to let $2.721 trillion of excess cash sit idle and be lost to current inflation rates. This cash is invested in government bonds (as required by law), thereby generating much-needed interest for social security. If the program is no longer allowed to buy U.S. Treasuries, it will lose one of its three major sources of revenue, leading to an acceleration of deep benefit cuts.
Image source: Getty Images.
The obvious answer is that Congress did not steal money from the Social Security Trust Fund. If you want to understand the real reasons behind the program’s financial woes, look no further than the various ongoing demographic changes.
You may be familiar with some of the changes underway and have heard about them for years. For example, baby boomers retiring from the workforce are driving down the worker-to-beneficiary ratio.
Likewise, we are living much longer now than we were in 1940, when Social Security checks were first mailed to retired workers.
But there are other, more subtle demographic changes that are/will have significant impacts on social security. For example, from 1998 to 2023, net legal immigration into the United States plummeted 58%. the main funds guaranteed) to contribute to the mechanism. Simply put, one of the biggest problems is that there are not enough legal immigrants coming to the United States
The U.S. birth rate is also at an all-time low. Although lower birth rates will not immediately harm Social Security, the worker-to-beneficiary ratio will be further affected 10 to 20 years from now when not enough new workers have entered the labor market to cover eligible beneficiaries. pressure.
Another problem is rising income inequality. In 2025, all income (wages and salaries, but not investment income) between $0.01 and $176,100 is subject to a 12.4% payroll tax. About 94% of workers earn less than $176,100, so they pay Social Security for every dollar they earn.
On the other hand, about 6% of workers earn more than $176,100, and anything above that number would be exempt from payroll taxes. Over time, more and more income “evades” payroll taxes.
Lawmakers are indeed to blame for not coming together sooner to strengthen Social Security. But there is absolutely no evidence that Congress stole America’s leading retirement program.
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But some little-known “Social Security secrets” can help ensure your retirement income grows. For example: A simple trick can give you $22,924 More…every year! Once you learn how to maximize your Social Security benefits, we think you’ll be ready to retire with the peace of mind we all seek. Just click here to learn how to learn more about these strategies.
View “Social Security Secrets” »
The Motley Fool has a disclosure policy.
Has Congress stolen trillions from Social Security? The answer is clear. Originally published by The Motley Fool
