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Will Social Security Exist In The Future? The OASDI Trust Funds Explained

Will Social Security Exist In The Future? The OASDI Trust Funds Explained

On April 22, 2020 the Social Security Board of Trustees released its annual report, sharing its findings regarding the long-term financial status of the Social Security Trust Funds. To read more about the report’s key findings, you can catch up here.

One of its major findings is that the combined OASI and DI Trust Funds are projected to become depleted in 2035. If you think that sounds bad, you are not wrong. It’s definitely not good, but it also isn’t as bad as it sounds. Social Security will still exist in 2035 and beyond and there are many ways to solve this future problem.

The OASI Trust Fund stands for the Old-Age & Survivors Insurance Trust Fund. The DI Trust Fund stands for the Disability Insurance Trust Fund. These are two distinct and separate programs, however they are often simply referred to as the combined OASDI Trust Fund.

You may be wondering where the trust fund money comes from. These two programs get funding from payroll taxes, benefit taxes, and earned interest.

  • Payroll Taxes: Social Security is designed to be a “pay-as-you-go” system. Current workers pay payroll taxes which are contributed to the Social Security program, which then pays benefits to current retirees. Payroll taxes are paid equally by the employee and employer, each paying 6.2% for Social Security for a total of 12.4%. Self-employed workers must pay the full 12.4%. There is also a payroll tax for Medicare as well.
  • Benefit Taxes: Some Social Security beneficiaries are subject to pay taxes on their Social Security benefits. Using a special calculation, it is determined whether or not single or joint-filers are subject to this taxation. These taxes are put back into the trust fund to finance the program.
  • Earned Interest: These trust funds earn plenty of interest over time, which increases the funds. 

Over time, the OASDI trust fund has collected a surplus of money and this money is referred to as the “reserves.” According to the 2020 OASDI Trustees Report, the reserves currently hold $2.9 trillion dollars.

Social Security has built these reserves because it was spending less money than it was taking in. However, that is about to change. The total annual cost of the program is projected to exceed total annual income beginning in 2021. This means that the reserves will begin to decline in 2021 and therefore, the combined OASDI Trust Fund reserves are projected to become depleted in 2035.

Does that mean Social Security will be completely gone? No. Although the reserves will be depleted, there will still be money and retirees will still receive benefits. Remember, Social Security is a “pay-as-you-go” system. There will still be workers paying payroll taxes and there will still be Social Security beneficiaries paying taxes on their benefits.

However, without the reserves and with more retirees than workers, Social Security will not have enough money to fund the full program. It is projected that in 2035, only 79% of its benefits will be able to be paid. This essentially means that beneficiaries will only receive 79% of their earned benefits.

Can this be fixed? Yes. There are many solutions and there have been many proposals to protect the solvency of the Social Security program. Some proposed solutions include raising the Full Retirement Age, raising payroll taxes, and raising the maximum taxable earned income limit. Congress can take action and make changes to ensure a strong future for the Social Security program.

Approaching retirement? Work with a Registered Social Security Analyst.

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