Most Americans know Social Security as the program that helps millions of retirees and people with disabilities. But there's lots of confusion about how Social Security and the national debt actually connect. Some say Social Security pays for the nation's debt. Others claim it's a major reason the federal government owes so much money. Let’s clear up the facts and see how these huge financial pieces fit together.
How Social Security Is Really Funded
Social Security gets almost all its money from payroll taxes. When you work and see FICA taxes taken out of your paycheck, that's where it goes. The funds collected cover today’s benefits for retirees and others, under a “pay-as-you-go” model. Any extra money—when payroll taxes exceed payouts—goes into special trust funds. These “trust fund” dollars don't sit in a vault; they're invested in U.S. Treasury securities.
These Treasury securities work like IOUs from the government to Social Security. They're considered among the safest assets in the financial world. When Social Security needs to pay more in benefits than it brings in (which has begun to happen), it cashes in these IOUs.
Photo by Markus Winkler
Does Social Security Add to the National Debt?
At first glance, it might seem like money moving to Social Security would pay down the debt. But it doesn't quite work that way. Here’s why:
- Social Security’s trust fund holds about $4 trillion in Treasury securities.
- These securities count as “intragovernmental debt.” That means the government owes money to itself.
- The rest of the national debt is “publicly held,” owed to individuals, mutual funds, foreign governments, and others outside of the federal government.
Social Security doesn’t directly increase the debt. While the government owes money to the trust funds, that doesn’t raise the total debt number—it just shifts where on the balance sheet the debt sits. The real problem starts when Social Security starts cashing those securities to pay out benefits, especially as the U.S. population ages and more people claim Social Security.
What Happens When Social Security Trust Funds Run Low?
Current projections show Social Security’s trust funds could run out around 2037. After that, payroll taxes alone won’t be enough to pay promised benefits in full. If the trust funds do run out, two things happen:
- Social Security can only pay what comes in through payroll taxes—about 78% of promised benefits unless Congress acts.
- To keep full benefits flowing, Congress would have to use money from general tax revenue, which can increase the federal deficit and, in turn, add to the national debt.
So, while Social Security trust funds themselves don’t “fund” the national debt, the shortfall between promised benefits and payroll tax income could end up increasing the debt if covered by broader federal borrowing.
The Trust Fund: Real Assets, Not Empty Promises
Some people call Social Security’s trust fund nothing more than a pile of IOUs. That’s not accurate. The U.S. Treasury securities in the fund are just like the government bonds sold to the public, except these are held within the government. They’re binding legal obligations backed by the full faith and credit of the U.S. government.
Key points:
- The trust fund is a bookkeeping method giving Social Security the authority to pay benefits beyond what comes in each year.
- When Social Security redeems its Treasury securities, the government must pay the fund by either raising taxes, cutting spending elsewhere, or borrowing from the public.
Deficits and the Debt: Where Social Security Fits In
The true drivers of the national debt are annual budget deficits—when the government spends more than it takes in. Social Security has added surpluses to its trust funds for decades, helping pay for benefits without impacting deficit numbers. But once those surpluses end (now happening), deficits elsewhere must make up the difference.
Biggest cost pressures come from three main sources:
- Social Security's benefit outflows as the U.S. population ages.
- Health care entitlements like Medicare and Medicaid.
- Slower growth in payroll tax revenues compared to benefit promises.
If Congress borrows more to bridge Social Security shortfalls, the total national debt increases. If lawmakers trim benefits or raise Social Security taxes, that can ease debt pressure.
Misconceptions About Social Security and Debt
It’s popular to blame Social Security for the nation’s red ink. In truth, the program sits on the sidelines of the annual federal budget, running its own books with dedicated revenue. Social Security can’t, by itself, cause the national debt to explode. Budget problems usually have more to do with broader spending patterns and revenue gaps.
Myths to stop believing:
- Social Security “funds” the debt: False. Its investments are accounted for but don’t pay down public debt.
- The trust fund is fake: Wrong. The securities are real and legally binding.
- Social Security is the top driver of deficits: Not alone. Health care programs and lower tax intake play bigger roles, especially as the U.S. ages.
What Needs To Change?
The looming shortfall in Social Security, driven by an aging population and fewer workers per retiree, matters for the future of the program and the national budget. Real fixes could include:
- Adjusting the pay-in rate (raising payroll taxes).
- Updating benefits formulas.
- Raising the age of eligibility for full benefits.
Addressing Social Security’s funding gap helps keep America’s promise to retirees and helps balance the broader federal budget. It won’t erase the national debt, but it’s a step toward sounder finances.
Wrapping Up
Social Security isn’t a piggy bank bailing out the U.S. national debt. The money the program collects and invests helps retirees and others who count on it, not the Treasury’s creditors. The confusion comes from how trust funds, government accounting, and debt obligations work together.
Understanding the difference between Social Security’s trust fund and money that goes toward paying down the actual federal debt is key. The biggest long-term challenges aren’t in how Social Security is structured, but how the government pays for all commitments—Social Security included—especially as the country gets older.
The path forward means honest conversation, smart reforms, and a focus on what really fuels the nation’s borrowing. That way, both Social Security and America’s financial future stand on solid ground.