For better or worse, Social Security is our country's most successful social program. For more than 80 years, it's been making payments to eligible retired workers without fail, and is responsible for pulling more than 22 million people out of poverty each and every year.
However, Social Security also happens to be the single-largest annual outlay for the federal government, accounting for anywhere between 20% and 25% of federal spending. Because it accounts for such a large percentage of federal outlays, a lot of people would like to know precisely where this money is going.
The good news is the annually released Social Security Board of Trustees report spells out exactly where outflowing dollars from the Social Security program wind up. With Social Security expending $1,059,299,000,000 last year (that's nearly $1.06 trillion), here's a detailed breakdown of precisely where it all went.
Benefits paid accounts for almost 99% of total outlays
As you might imagine, and would hope as a current or future Social Security recipient, the vast majority of the money flowing into the program is winding up in the hands of eligible beneficiaries. Of the $1.059 trillion collected in 2019, $1,047,930,000,000 in net benefit payments were made. That's 98.93% of all outflows.
But let's take this a step further and examine where these benefits actually went.
In total, $1,047,882,000,000 was paid out in traditional benefits to the Old-Age and Survivors Insurance (OASI) Trust or the Disability Insurance (DI) Trust.
Beginning first with the OASI (i.e., retired workers and survivors), we saw $902,833,000,000 in benefits paid, with a little over $777 billion going to retirees and their immediate family:
- Retired workers: $737,809,000,000
- Spouses of retired workers: $33,323,000,000
- Children of retired workers: $6,127,000,000
We also witnessed more than $125 billion paid to the survivors of deceased workers:
- Aged widows or widowers: $100,190,000,000
- Children: $21,310,000,000
- Disabled widows and widowers: $2,362,000,000
- Widowed mothers/fathers caring for child beneficiaries: $1,488,000,000
- Parents: $20,000,000
The OASI is also responsible for lump-sum death benefits, of which $206 million were paid in 2019.
All told, the OASI program accounted for 86.2% of the nearly $1.048 trillion in benefits paid last year. Since more than four out of five Social Security beneficiaries are senior citizens, this really shouldn't come as a surprise.
As for the DI Trust (long-term disabled workers and eligible family members), it accounted for the remaining $145,049,000,000 in spending under the benefits category:
- Disabled workers: $136,512,000,000
- Children: $8,004,000,000
- Spouses: $532,000,000
To wrap up the benefits category, you'll note the small difference between the benefits paid via the OASI and DI ($1,047,882,000,000) and net benefits paid ($1,047,930,000,000). This difference accounts for a $56 million reimbursement from unnegotiated (presumably uncashed) checks and a $105 million outflow for vocational rehabilitation services for disabled beneficiaries.
Here's what happens to the other $11.37 billion
While almost 99% of Social Security's outflows are used to pay eligible beneficiaries, there's still more than $11 billion in cash outflows from last year left to be accounted for. This remaining spending can be broken down into two categories: The Railroad Retirement Exchange and administrative expenses.
The first category, which describes transfers made from Social Security to the Railroad Retirement Board, totaled $4,946,000,000. Railroad Retirement benefits were set up at the same time as Social Security in 1935. These payout mimic Social Security benefits, with the exception that the Railroad Retirement Board handles the disbursements. Social Security makes a transfer to the Railroad Retirement Exchange every year.
The other category concerns the administrative costs to keep Social Security operational. Net administrative expenses in 2019 tallied $6,422,000,000 and broke down like this (numbers in parenthesis signify a reimbursement, not an expense):
- Social Security Administration costs: $5,950,000,000
- Treasury Department: $468,000,000
- Demonstration projects: $13,000,000
- Miscellaneous reimbursements from the General Fund: ($8,000,000)
- Offsetting miscellaneous receipts: ($1,000,000)
All told, the administrative aspects of Social Security only "ate up" 0.6% of collected revenue last year, which signals that it's a relatively efficient program.
Two places where Social Security dollars didn't go in 2019
Just as important, you should take note of two places where Social Security dollars did not wind up in 2019.
First off, there's a prevailing misconception that undocumented workers are receiving traditional Social Security benefits. These claimants allege that giving benefits to undocumented immigrants is a big reason Social Security is expected to struggle in the years that lie ahead.
However, this allegation is completely false, and no benefits have made their way from the program to undocumented immigrants. In order to receive a monthly benefit from the OASI or DI, a beneficiary must have a Social Security number, and they need to have earned a requisite number of lifetime work credits to qualify. An undocumented worker wouldn't meet either of these criteria.
Second, you'll note that Social Security's outflowing cash didn't wind up in the hands of Congress. There's a long-standing myth that lawmakers raided the Social Security Trusts, and this is the primary reason why the program isn't on solid financial footing. But like the previous misconception, this theory is all talk and no substance.
Although Social Security is required by law to invest its asset reserves into special-issue bonds and certificates of indebtedness, this winds up making, not costing, the program $80 billion-plus in net interest income each year. Every cent in Social Security's asset reserves remains accounted for.