Be sure to read your estimated Social Security letter. It contains:

Will Social Security still be around when I retire?

Yes. The Social Security taxes you now pay go into the Social Security Trust Funds and are used to pay benefits to current beneficiaries. The Social Security Board of Trustees now estimates that based on current law, in 2037, the Trust Funds will be depleted. Because people are living longer and the birth rate is low, the ratio of workers to beneficiaries is falling. Therefore, the taxes that are paid by workers will not be enough to pay the full benefit amounts scheduled.

However, this does not mean that Social Security benefit payments would disappear. Even if modifications to the program are not made, there would still be enough funds in 2037 from taxes paid by workers to pay about $760 for every $1,000 in benefits scheduled.

Andy:
Thanks for posting this.
The Social securiity taxes do not go into the trust funds.
They go into the general fund of the Treasury.
What goes into the trust funds are credits, bookkeeping entries, which are secured by newly issued Treasury securities, debt.

"The money will go into the Treasury - the General Fund. The tax money does not go into the Social Security account, but goes into the Treasury. The collection of the tax is one operation. Spending regular appropriations for benefits under Title 2 is another operation - under other powers."

Comgressional Record - House
http://www.ssa.gov/history/pdf/h417.pdf.
Don Levit

I've been critically aware of the future cutback for a couple years because that just so happens to be the year I'll reach full SSA retirement.

Trust Fund FAQ: http://www.ssa.gov/OACT/ProgData/fundFAQ.html
Trust Fund balances since 1957: http://www.ssa.gov/OACT/STATS/table4a3.html

Of course they keep track of the Social Security portion of that tax revenue on pieces of paper (which I think of as non-marketable treasury IOUs). Perhaps they might put these notes in some kind a file cabinet in Virginia somewhere. I suppose one could call that file cabinet the "Social Security Trust Fund" if they wanted to be really reckless.

Surely all Americans understand that the government spends all revenue taken in from all sources each year and since that's not enough, they sell treasury bills and treasury bonds so more can be spent than is actually received. Just look at the back pages of your Form 1040 (if you get a paper copy). Okay, I'm obviously kidding about the "All Americans" part.

You would be amazed at the number of seemingly competent adults who don't understand that. I suspect that many of them are the same ones who think that they aren't out of money if they still have checks.

Some call it a "Lock Box." (The name 'Pandora' was already taken.)

That is correct the Social Security trust fund balances are no more than numbers on pieces of paper.
The funds are exhausted when the numbers hit zero.
But, that does not mean hard assets are backing the promises, only soft assets based on the full faith and credit of the U.S. government.


Apparently, in 1938, the Advisory Council for Social Security was concerned about "payroll taxes not being credited automatically to Social Security, but first go to the Treasury's general fund.
When Social Security was created, it was thought constitutionally correct to separate legally the taxation and benefits. We believe such legal separation is no longer needed, because the taxes are contributions to finance the benefits. It is logical and expedient to autiomatically credit the taxes to the Social Security trust fund."

One of the recommendations was that "the receipt of the taxes levied in Title 8, less the cost of collection, should through permanent appropriation be credited automatically to an old-age insurance fund and not to the general fund for later appropriation to the account. It is believed that such an arrangement would be constitutional."

http://www.ssa.gov/history/reports/38advise.html.
Don Levit

Chinese fortune cookie says 'Very, very soft assets'.

Folks:
I assume most of you are aware of our total debt situation, which amounts to around $12 trillion.
About $7 trillion is public debt and $5 trillion is intragovernmental debt (debt the government borrows from itself, such as through Medicare and Social Security).
The interest on the public debt is a current expense.
Interest on intragovernmental debt is postponed until the various trust funds expire.
This occurred within the Medicare Hospital Insurance Trust Fund last year.
Until that time, the loans were "interest free."

The principal on neither debt is paid back, unless we have a budget surplus.
Why does the principal debt not grow, if principal is not paid back?
Don Levit

Because the Feds can make up any accounting rules they choose.

David:
That is not entirely true.
They do typically abide by the FASAB, which is an organization that does similar advisory work to the FASB and GASB.
Don Levit