Social Security is confusing to many people, because the program has a trust fund that is at risk of running out of money. In assessing your own benefits, it's useful to know exactly what the Social Security Trust Fund is and why it matters to you.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, explains how the Social Security Trust Fund works. Essentially, all the payroll taxes the Social Security Administration collects go toward benefits and administrative costs, and when there's money left over, it's required to go into the Social Security Trust Fund for use in future years. Dan notes that the Trust Fund must invest in Treasury securities, which earn market interest rates. Dan further points out that recently, Social Security started paying out more in benefits than it takes in from payroll taxes, requiring it to tap part of its Trust Fund to cover the shortfall. When the Trust Fund runs out, Social Security won't just stop, but it will have to reduce benefits by about a quarter from current levels.
Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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