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Where do payroll deductions for Social Security go?
In theory, they're held in trust by the government. But it's not as if your money sits there in the Social Security trust fund waiting for you to retire. After current beneficiaries are paid, surplus dollars are used to buy bonds from the U.S. Treasury. So the trust has the bonds, but the money is now in the Treasury, where Congress can use it for any purpose.
"The Social Security trust fund is ... a piggybank holding paper IOUs from Congress," Stumpf says.
For the trust funds to remain solvent over the next 75 years, the 2015 Trustees Report says, one of these measures would have to be implemented immediately:
- Payroll taxes would have to increase by 2.62 percentage points, from its current level of 12.4% to 15.02%;
- Benefits would have to be cut by 16.4% to all current and future beneficiaries;
- If applied only to beneficiaries enrolling in 2015 or later, benefits would have to be cut by 19.6%;
- Or some combination of the above should be adopted.
According to the report: "The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them."
Lawmakers have been dragging their heels to make any fixes to Social Security, in part because it's such a hot-button issue.