Certain Social Security benefits use a special government trust fund in order to secure payments to current and future beneficiaries who qualify for payments under various definitions. Those who qualify for Medicare coverage may also receive a form of Social Security payments from this fund.
Understanding the Social Security Trust Fund
The Social Security Trust Fund is the collective name for The Federal Old-Age and Survivors Insurance Trust Fund (OASI Trust Fund) and the Federal Disability Insurance Trust Fund (DI Trust Fund). At its most basic, a trust fund of any kind is designed to hold investments on behalf of beneficiaries, who then receive distributions from that fund according to a scheduled or structured agreement.
In the case of the Social Security Trust Fund, income taxes paid by beneficiaries are invested into non-marketable securities, which earn interest dependent on the market rate. The program is overseen by the Social Security Trustees, who provide reports on the trust’s financial status and manage the costs associated with running the program.
Benefits Paid Through the Social Security Trust Fund
Although Medicare coverage, also known as Medicare insurance, is not directly connected to the Social Security Trust Fund, many recipients may receive payments from the fund due to the age or disability that also qualifies them for Medicare insurance.
- Retirement benefits. Starting at 62, eligible retirees can begin to receive early retirement benefits through the Federal Old Age and Survivors Insurance Trust Fund. Full retirement age is determined by your year of birth, and late retirement age is 70. When you retire early, you receive a smaller benefit payment per month than what you would receive at full retirement age. Retiring later can earn credits that increase your benefit payment.
- Disability insurance benefits. If you are determined to be disabled by the Social Security Administration and have a qualifying number of work credits, you will receive payments through the Federal Disability Insurance Trust Fund. The exact amount is dependent on the beneficiary’s earnings record.
- Survivor and dependent benefits. Survivors of deceased beneficiaries or dependents of retired or disabled beneficiaries may also qualify to receive a payment based on a percentage of the beneficiary’s amount. If the beneficiary is retired or deceased, the payments are allocated from the OASI Trust Fund. If the beneficiary is disabled, the payments are allocated from the DI Trust Fund.
Supplemental Security Income (SSI) is a benefit paid to disabled children and adults who do not have qualifying work credits through the DI Trust Fund. These payments are not allocated from either OASI or DI Trust Funds, however.
Defining a Surplus in the Social Security Trust Fund
The Social Security Trust Fund is paid through income taxes of working beneficiaries. When the amount they are paying equals more than what is being paid out to those currently receiving a Social Security payment through the programs this trust funds, it’s called a surplus.
In the event of a surplus, the U.S. Treasury absorbs the excess funds to be used elsewhere in the federal budget. In exchange, it deposits certain government securities into the fund. When the fund shows a deficit, which is when more is being paid out to beneficiaries than is being received through tax contributions, the trustees can recover the funds exchanged for securities to remedy the deficit.
The financial condition of this trust fund can change when policies regarding its funding or those that impact income taxes are altered. The Social Security Administration provides actuarial tables that help beneficiaries understand the current status of the fund and its future. Reports on the status of the fund will reflect the calendar year prior to the date of the report.
In 2019, the Social Security Trust Fund was reported to have a $3.1 billion surplus in 2018.
How Does the Social Security Administration Calculate Your Benefits?