The deficit doubled, as benefit payments spiked in part due to the expansion of Social Security, while income rose only slowly.
By Wolf Richter for WOLF STREET.
The new thing this year for the “Old-Age and Survivors Insurance (OASI) Trust Fund,” commonly called the Social Security Trust Fund, was the Social Security Fairness Act, signed into law on January 5, 2025, by President Biden. It expanded benefits to certain groups of retirees with careers in government, education, and law enforcement that are already covered under public pension plans.
The Act ended the Windfall Elimination Provision and the Government Pension Offset, wich had reduced Social Security benefits for certain people who also received a public pension.
Retroactive benefit payments started going out in February 2025, and surged out in March, and benefit payments in March spiked by 13.5% from February, and by 20.2% year-over-year, to $130 billion for just March, a massive record. Those were just the retroactive catch-up payments.The regular monthly benefit payments also increased under the Act.
But the Act did not provide for any additional revenues or other tweaks. In addition, the growth of contributions slowed sharply as the labour market has been growing more slowly. And so, with income barely rising (blue in the chart), and outgo surging (red), the Social Security deficit doubled this fiscal year to $181 billion, according to the Social Security’s fiscal year income and outgo data, released today.
When the total income (blue) was above the total outgo (red), the Trust Fund ran a surplus which caused assets to accumulate and the Trust Fund to grow. When the red line rose above the blue line – this happened for the first time in 2018 – the Trust Fund ran a deficit and its assets shrank.
Congress needs to get serious about tweaking various aspects of Social Security, but this time to improve the financial aspects of the system, and not to make them worse, as it had done in January.
These figures do not include the Disability Insurance Trust Fund, which by law is a separate entity from the OASI Trust Fund, and is not part of this discussion here.
Total outgo (red line in the chart above) spiked by $117.2 billion in the fiscal year through September 30, or by 9.0%, to a record $1.42 trillion.
By category of outgo:
- Benefit payments spiked by $117.4 billion (+9.1%), to $1.41 trillion, attributable to more retirees drawing benefits, including through the Social Security Fairness Act, and to Cost of living Adjustments (COLAs).
- Administrative expenses fell by $300 million to $4.5 billion (0.19% of the Trust Fund balance, 0.36% of total income).
- Transfer to Railroad Retirement Program rose by $100 million to $6.0 billion
Total income (blue line in the chart above) rose by only $27 billion (+2.3%) in the fiscal year ended September 30, to a record $1.24 trillion.
By category of income:
- Contributions rose by only $21 billion (+1.9%), to $1.12 trillion. The slow increase was due to much slower labor market growth.
- Taxation of benefits rose by $5.1 billion, or by 9.6%, to $58.
Social Security Trust Fund: Interest Income Rises,But Still Lagging
The Social Security Trust Fund earned $64 billion in interest income in fiscal year 2024,up from $57 billion the prior year,according to the Treasury Department’s annual report. This increase reflects the impact of rising interest rates, but the income remains significantly below what it could be.
The trust Fund holds a massive portfolio of U.S. Treasury securities. At the end of the fiscal year, the portfolio was split between $2.23 trillion in interest-bearing special-issue Treasury securities and $172 billion in short-term cash-management securities (“certificates of indebtedness”).
like Treasury I bonds and EE savings bonds held by retail investors at TreasuryDirect, these securities are not traded on the secondary market and are shielded from its fluctuations. The Trust Fund receives face value upon redemption, rendering day-to-day price changes irrelevant.
Investing in Treasury securities at issuance and holding to maturity is a conservative, low-risk strategy. Though, the Federal Reserve’s period of interest rate repression from 2008 to 2022 significantly reduced the cash flow from this strategy.
Average Interest Rate Increases. As low-interest-rate securities from the quantitative easing (QE) and zero interest rate policy (ZIRP) era mature,they are being replaced with higher-interest-rate securities with shorter maturities. this has pushed the average interest rate earned by the Trust Fund up to 2.6%, marking the third consecutive year of increases after decades of decline, though it remains disappointingly low.
For example, had the Trust Fund earned an average of 4.1% on its treasury securities this fiscal year, instead of 2.6%, it would have generated $94 billion in interest income, compared to the actual $64 billion. In the previous fiscal year, the deficit would have been one-third lower, and two years ago, the fund would have recorded a surplus.
Source: US Treasury
The report also showed that total income to the combined Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds was $1.148 trillion, while total expenditures were $1.203 trillion, resulting in a net decrease of $55 billion. The combined Trust Funds held $2.823 trillion in reserves at the end of the fiscal year.
The OASI Trust Fund, which pays retirement benefits, held $2.452 trillion in reserves,while the DI Trust Fund,which pays disability benefits,held $371 billion.
Worth a look