The Social Security Administration (SSA) recently revealed a significant leap in the United States government’s total income, amounting to a staggering $1.15 trillion for the fiscal year ending September 30. This marks a substantial 10.7% increase, equivalent to $111 billion, from the previous year.

Breaking down the sources of this income, contributions witnessed an 11.8% jump, reaching $1.04 trillion, attributed to considerable employment growth and notable salary increments in 2022 and 2023. Interest income from securities in the Trust Fund, however, experienced a slight dip of $2 billion, settling at $63 billion. Taxation of benefits, on the other hand, increased by $3 billion, totaling $50 billion.

Simultaneously, the total outgo surged by 12.0%, equivalent to $129 billion, setting a new record at $1.20 trillion. This increase was driven by an 8.7% Cost of Living Adjustment (COLA) – the largest since 1981 – and a growing number of individuals reaching retirement age and subsequently drawing Social Security benefits. Notably, benefits paid constituted 99.2% of the outgo, with the remaining 0.8% comprising transfers to Railroad Retirement programs and administrative costs.

The fiscal dynamics depict a scenario where when total income surpasses total outgo, the Trust Fund accumulates assets. Conversely, when the total income falls below total outgo, the Trust Fund’s assets decrease. The past fiscal year ended with a $50 billion gap between income and outgo, showcasing a decrease from the $55 billion deficit in 2021, yet an increase from the $32 billion deficit in 2022.

Tracing back to 1987, the first recorded deficit occurred in 2018, marking a significant shift from the consistent annual surpluses that had contributed to the $2.8 trillion in the Trust Fund at that time. The upcoming fiscal year projects a slower growth in outgo, thanks to a relatively low 3.2% COLA. This adjustment, while less favorable for retirees, has the potential to reduce the deficit, or possibly result in a surplus, assuming employment and salary growth maintain their current momentum.

Focusing on the Social Security Trust Fund, technically referred to as the “Old-Age and Survivors Insurance (OASI) Trust Fund,” it witnessed a 1.8% reduction, equivalent to $50 billion, closing the fiscal year at $2.67 trillion. It is crucial to note that these figures exclude the Disability Insurance Trust Fund, a separate legal entity from the OASI Trust Fund.

The OASI Trust Fund primarily invests in interest-bearing Treasury securities and short-term cash management securities, avoiding exposure to the secondary market’s potential volatility. This investment strategy ensures stability and has enabled the SSA to operate with ultra-low administrative expenses, amounting to just 0.16% of the assets under management.

However, the Fund has not been immune to challenges. The Federal Reserve’s interest rate repression since 2007 significantly impacted the Trust Fund’s interest income, resulting in a decline from a peak of 5.1% in 2007 to 2.4% in the current fiscal year. The long-term nature of the securities in the Trust Fund means there is a delay before changes in interest rates reflect in the average interest rate and interest income.

Addressing the current $50 billion deficit necessitates a multifaceted approach. A normalization of longer-term Treasury yields in the 4% to 8% range would significantly contribute to balancing the Fund’s income and outgo. Furthermore, a combination of small adjustments to the Social Security program, alongside policy changes such as prohibiting the Federal Reserve from engaging in quantitative easing, could restore long-term stability to the Trust Fund.

While the Social Security program faces financial challenges, it remains a crucial safety net for retirees. However, it is imperative to recognize that Social Security was never intended to be the sole source of income in retirement. To ensure financial stability in retirement, individuals must also rely on personal savings, assets, and potentially part-time employment. The longevity and efficacy of the Social Security Trust Fund are contingent upon strategic adjustments and a collective effort to safeguard this vital program for future generations.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.