The Social Security trust funds are two accounts at the U.S. Treasury that collect dedicated payroll taxes and use them to pay retirement, survivor, and disability benefits. Understanding how the Social Security trust funds work starts with a simple picture: money comes in from workers’ paychecks, most of it goes right back out to current beneficiaries, and any surplus is invested in special Treasury securities that earn interest until it’s needed. At the end of 2024, the combined funds held about $2.72 trillion in reserves, but benefit payments have outpaced tax revenue every year since 2010.1Social Security Administration. Projection for Combined Trust Funds One Year Sooner Under current projections, those reserves will be exhausted by 2034, at which point ongoing tax revenue would still cover roughly 81% of scheduled benefits.2Social Security Administration. A Summary of the 2025 Annual Reports
Two Separate Funds, One System
Federal law splits Social Security into two legally distinct accounts. The Old-Age and Survivors Insurance (OASI) Trust Fund pays monthly benefits to retired workers, their spouses, and survivors of deceased workers. The Disability Insurance (DI) Trust Fund pays monthly benefits to workers who can no longer earn a living because of a severe medical condition. Both were created and are governed by the same federal statute.3Office of the Law Revision Counsel. 42 USC 401 – Trust Funds
Keeping the accounts separate lets the government track retirement and disability finances independently. One fund running short doesn’t automatically drain the other. The law restricts both funds to paying benefits and the administrative costs of running the programs, nothing else.
Where the Money Comes From
Three revenue streams feed the trust funds: payroll taxes on current workers, income taxes some beneficiaries owe on their benefits, and interest earned on the funds’ invested reserves.
Payroll Taxes
The payroll tax is by far the largest source. Employees pay 6.2% of their wages toward Social Security, and their employers match that dollar for dollar.4Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax5Office of the Law Revision Counsel. 26 USC 3111 – Rate of Tax The combined rate is 12.4% of covered wages. Self-employed workers pay the full 12.4% themselves, since they act as both the employee and the employer.6Office of the Law Revision Counsel. 26 USC 1401 – Rate of Tax
The tax only applies up to an annual earnings cap. For 2026, that cap is $184,500, and every dollar earned above it is exempt from Social Security tax.7Social Security Administration. What Is the Current Maximum Amount of Taxable Earnings The cap adjusts each year based on changes in average wages nationwide.
Income Tax on Benefits
Beneficiaries with significant other income may owe federal income tax on part of their Social Security checks. Depending on filing status and total income, up to 85% of your benefits can be taxable.8Social Security Administration. Must I Pay Taxes on Social Security Benefits The revenue collected flows back into the trust funds, supplementing the payroll tax base.
Interest on Reserves
Reserves that aren’t needed immediately to pay benefits earn interest on the Treasury securities they hold. The rate is set by a formula tied to the average market yield on marketable government bonds with at least four years until maturity, rounded to the nearest eighth of a percent.9Social Security Administration. Interest Rate Formula The return is roughly what a private investor would earn on mid-term government debt.
How the Reserves Are Invested
By law, the trust funds cannot invest in stocks, corporate bonds, or anything other than obligations backed by the full faith and credit of the United States. In practice, they invest exclusively in a special class of Treasury securities created just for this purpose.3Office of the Law Revision Counsel. 42 USC 401 – Trust Funds
These special-issue securities differ from ordinary Treasury bonds sold through a brokerage. They aren’t traded on the open market and are available only to the trust funds.10Social Security Administration. Frequently Asked Questions About the Social Security Trust Funds The advantage is flexibility. Special-issue bonds can be redeemed at face value any time the Social Security Administration needs cash to cover benefit payments. A regular Treasury bond sold before maturity might trade at a loss or a gain depending on interest rates, but these securities always pay back exactly what was put in, plus accrued interest.
Critics sometimes call these securities “IOUs” and argue the money has already been spent. The SSA has pushed back on that framing, noting the bonds carry the same full-faith-and-credit guarantee as any other government debt.10Social Security Administration. Frequently Asked Questions About the Social Security Trust Funds When the Treasury redeems them, it must come up with the cash, just as it would for any other bondholder.
Who Runs the Funds
A six-member Board of Trustees oversees the trust funds. Four members serve because of their government positions: the Secretary of the Treasury (who acts as Managing Trustee), the Secretary of Labor, the Secretary of Health and Human Services, and the Commissioner of Social Security.11Social Security Administration. Signatories to the Trustees Reports The remaining two are public trustees appointed by the President and confirmed by the Senate. They cannot belong to the same political party.12Social Security Administration. History of the Boards of Trustees and the Public Trustee Positions
Federal law requires the Board to submit a report to Congress by April 1 each year. That report has to include the funds’ assets, disbursements from the prior year, projected income and spending for the next five years, and a finding on whether each fund is in “close actuarial balance.”3Office of the Law Revision Counsel. 42 USC 401 – Trust Funds These annual trustees’ reports drive most public discussion about Social Security’s finances.
Where the Funds Stand Now
For most of Social Security’s history, payroll tax revenue exceeded benefit costs, building the reserve. That flipped around 2010. Total benefit payments have outpaced payroll tax income every year since, and the gap has widened as the baby boom generation moves into retirement.
At the end of 2024, combined OASI and DI reserves stood at about $2.72 trillion, down $67 billion from the prior year.1Social Security Administration. Projection for Combined Trust Funds One Year Sooner The system covers the annual shortfall by redeeming special-issue securities from the reserve. As long as the reserves have a positive balance, the SSA has full legal authority to pay every dollar of scheduled benefits.
One measure of how quickly reserves are eroding is the trust fund ratio, which expresses reserves at the start of a year as a percentage of that year’s projected costs. For 2026, the combined OASDI ratio is roughly 149%, meaning reserves could cover about a year and a half of benefits even with no incoming revenue.13Social Security Administration. Trust Fund Ratios – 2025 OASDI Trustees Report The DI fund is in substantially better shape than OASI, with a ratio of 116% versus 153% for retirement, largely because disability applications have trended downward in recent years.
What Happens When the Reserves Run Out
The 2025 Trustees Report projects that the OASI fund alone will exhaust its reserves by 2033. At that point, incoming payroll taxes would be enough to pay 77% of scheduled retirement and survivor benefits. If OASI and DI were hypothetically combined, the projected depletion year is 2034, with 81% of scheduled benefits payable from ongoing revenue.2Social Security Administration. A Summary of the 2025 Annual Reports Combining the two funds would require a change in law; under current rules, they operate independently.
Depletion does not mean Social Security disappears. Workers would still pay payroll taxes, and that revenue would still flow to the trust funds. The problem is that incoming money alone can’t cover 100% of the benefits people are owed. What actually happens at that point is legally unsettled. The Social Security Act says beneficiaries are entitled to their full scheduled benefits, but the Antideficiency Act prohibits any federal agency from spending more than its available funds. No one has tested that conflict in court.14Library of Congress, Congressional Research Service. Social Security – What Would Happen If the Trust Funds Ran Out
The two scenarios most commonly discussed are paying full benefits on a delayed schedule or paying reduced benefits on time. Either way, beneficiaries would see a meaningful cut in the money reaching their bank accounts unless Congress acts before depletion. Beneficiaries would remain legally entitled to their full benefits and could potentially sue for the difference, though how courts would handle that remains an open question.