What Happens When a Social Security Trust Fund Runs Out?

When a Social Security trust fund runs out of reserves, it loses the ability to draw on past surpluses to help pay today’s benefits. Dedicated tax revenue continues to come in. If that income falls short of the benefits scheduled under current law, it can cover only part of the cost unless Congress changes the law. Understanding what runs out starts with separating the money the program takes in over a period from the reserves it has built up over time.

Social Security has two legally separate funds. The Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund pay different benefits. The first covers retired workers and eligible family members, including survivors of workers who have died. The second covers eligible workers with disabilities and their families. A projection for the two funds together offers a view of the whole program, while the balance of each fund matters for the benefits that fund can pay. Moving money between the funds would take a change in law.

Most of the program’s income comes from payroll taxes, which workers and employers pay on covered earnings. The funds also receive a portion of the federal income taxes paid on some Social Security benefits, and their reserves earn interest. The Treasury manages the accounts. According to the Social Security Administration’s trust fund FAQ, tax income is invested in Treasury securities issued specifically to the funds. The cash goes into the Treasury’s general fund in exchange for those securities. The securities are obligations of the federal government, and the Treasury can redeem them at face value when the program needs cash for payments.

Over time, the reserves grow when total income exceeds the cost of benefits and administration. They shrink when costs exceed income and the program draws down securities to cover the difference. Imagine a simplified fund that owes $100 in benefits during a given period and takes in $80 in taxes. Ignoring interest and administrative costs, it can redeem $20 of its reserves to make up the difference. If the reserve is exhausted when the same figures come around again, the $80 in taxes is still available, and the $20 gap remains. Those round numbers illustrate the arithmetic and carry no forecast about a particular check.

This is the difference between scheduled and payable benefits. A scheduled benefit is what the program’s benefit formulas call for. Payable benefits reflect what the fund can finance under the rules and resources assumed in the projection. A Social Security Administration analysis of cash flows explains that once reserves are depleted, payments without a change in law would be limited by ongoing tax receipts. A percentage in a forecast describes how much of the overall scheduled cost those receipts could cover. It does not specify when a particular household would receive a check or exactly how a shortfall would be handled.

The trustees estimate future income and costs using assumptions about factors including wages, employment, births and longevity. For example, higher taxable earnings can bring in more payroll tax revenue. A change in how long people live can affect how long the program pays retirement benefits. The trustees’ report summary shows projections under stated assumptions and identifies the funds covered by each projection. When you see a year in a headline, look for the report year as well. New economic data and revised assumptions can move the projected date even when the benefit formulas stay the same.

A depletion forecast therefore describes a change in the way the program can cover its bills. Before that point, the fund can use both incoming revenue and accumulated reserves. Afterward, ongoing income would have to carry the cost unless the law changes. When a headline says a fund is running out, the next useful question is how much of its scheduled spending the continuing revenue could support.