How Social Security Works: The Trust Fund

by admin on September 22, 2020

A common misconception about Social Security is that: “The money I pay into Social Security is my retirement or disability, and when I retire that pile of money is there waiting for me.”

In fact, the taxes you pay on your wages fund the Social Security Trust Fund, which actively pays the people who are currently receiving Social Security benefits. When it’s your turn to retire or receive disability benefits, your payments will be funded by the people who are currently working and paying into the system.

The Trust Fund is how the government accounts for Social Security taxes paid by workers in the United States. The current system only works when there are enough people paying taxes to support the number of people collecting benefits for retirement and disability. The Trust Fund works like a giant checking account. When there is enough money coming in to cover the checks going out, all is well.

There is a crisis brewing for Social Security. When the generation of Americans known as “Baby Boomers” reaches retirement age, there will not be enough people working and paying the taxes needed to keep the trust funded. It is projected that by the year 2018 the Trust Fund will be in the red; Social Security will be entirely depleted by the year 2042. Congress and the President will have to take action to prevent this.

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