In a recent opinion letter in the local paper, a reader chastised President Obama for holding the threat of delayed Social Security checks over Congress as the debt ceiling debate rages on. In the letter, the reader stated that the Social Security Trust Fund has “$2.5 trillion in it”. The statement prompted me to research the topic a little more.
The “Social Security Trust Fund” is a little bit of a misnomer. The fund exists as a means for the federal government to account for monies paid into and out of the Social Security system. Monies come into the fund in the form of contributions from workers and employers. They go out to cover payments for retirees,survivors, disabled and for administrative expenses. But the trust fund has no money. Since 1981, Uncle Sam has taken in more in Social Security taxes than paid out. But instead of saving the additional receipts for a rainy day, Sam just put the excess in the general budget and spent it. In return, the government issued an IOU to itself saying, “I’ll pay myself back whenever I need it.” The IOU comes in the form of securities issued by the government that can be redeemed for payments. The problem is that the securities cannot be sold on the open market. Instead, they can only be redeemed by the government to the government – in effect, an IOU from one branch to another.
Confusing enough? Here’s an analogy that hopefully simplifies things: Let’s say I decide to save $10,000 each year for my retirement. Things go just as planned during year one and in December I’ve accumulated $10,000 towards my goal. I’m doing great until I decide to take a trip to reward myself for my disciplined savings. I spend my $10,000 in savings on a trip, then deal with the guilt by writing myself an IOU. When I retire, instead of an investment nest egg all I have is a stack of paper saying I owe myself a lot of money. At that point I’m just hoping my kids are doing well and love me.
To say their is no Social Security Trust Fund would be inaccurate. There’s just no money there because the government spent the excess on other programs. – Stacey Wall