Dear Rusty: Sometimes words used have different meaning to others, like your recent article on the Social Security “Trust Fund.” In a true trust fund, monies are only used for a specific purpose. Our so-called Social Security Trust Fund doesn’t work like that. Instead, money collected goes directly into the US Treasury, mixed up with everything else. To the government, Social Security is just another revenue stream. They don’t separate it from others and have no intention of doing so. Soon, we’ve been told, the Social Security fund will be declared insolvent. It should never happen but when you spend every penny that comes in on everything else, when the real purpose needs it the well is dry. Lock up the money so that the political elites can’t use it for their other important items and save the systems. Let them continue to do as they are and have been doing since the 60’s, and it’s gone. Signed: Disgruntled

Dear Disgruntled: I understand that using the term “trust fund” in the context of Social Security may not fit the precise definition of those words, but they do serve well as an easy-to-understand description of an account dedicated only for a specific purpose. Those of us intimately familiar with the topic of Social Security are well aware that many believe strongly the Social Security “Trust Fund” either doesn’t truly exist or that the Government “raids” the fund for general purposes. I can only assure you that I have researched this topic extensively and found that, indeed, there are two Federal financial accounts which contain Social Security assets, namely, the “Old Age and Survivors Insurance Trust Fund” and the “Disability Insurance Trust Fund.” And, by Federal law, assets in these accounts can be used only for the purposes they were set up for – paying Social Security benefits to eligible retirees, disabled workers, their dependents, and survivors. While revenues from payroll taxes do technically flow into the U.S. Treasury first, that money is then appropriated for the two Social Security “Trust Funds” as reserves to pay benefits to Social Security recipients. But it’s important to note that payroll taxes aren’t the only source of revenue for these accounts; income taxes on Social Security benefits, as well as interest on the excess monies held in reserve are additional sources. Indeed, interest on the $2.9 trillion in the “trust funds” contributed over $85 billion to the reserves last year. “Locking up” the money would only serve to exacerbate those solvency issues by eliminating interest as a revenue source. And, just for information, the average interest yield was about 2.9% in 2017.

Social Security’s looming financial issue wasn’t caused by “political elites” using the money for purposes other than Social Security. Rather, the issue is a result of the declining ratio of workers to beneficiaries, and the constantly improving longevity of our population. In other words, the number of beneficiaries is growing faster than the number of contributing workers and those beneficiaries are collecting benefits longer. Average longevity at the program’s inception was about 65; today it’s about 85. And the ratio of workers to beneficiaries in 1945 was about 42:1, whereas today there are less than 3 workers for every recipient of Social Security benefits. Starting this year, Social Security will be paying out more in benefits than it receives in revenue and will use the reserves to fulfill its obligations. Unless Congress addresses this problem soon, all $2.9 trillion of the reserves will be depleted by about 2034. But that doesn’t mean the system will be insolvent at that time; rather it will be able to pay out in benefits only the same amount as was received in revenue. And that would, according to the latest report from the Trustees of Social Security, result in a benefit cut of about 21% to all recipients. Will that happen? We can’t predict what a future Congress may do, but hopefully Congress will act soon to restore Social Security’s financial health.

This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at [email protected].

By Russell Gloor, AMAC Certified Social Security Advisor. Association of Mature American Citizens.

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