Many articles have been written lately about the coming Social Security cash shortfall in 2032 and how the trust funds will be depleted and what to do about it. Options mentioned include raising the retirement age, reducing benefits, raising the tax limit or even privatization. I haven’t seen any articles that get to the core of how the system actually works. Hopefully this piece will provide some clarification by describing the basic money flow through system without getting into the labyrinth of details.

1. Federal Insurance Contributions Act (FICA) or Payroll Tax.

For the Social Security the portion of the payroll tax, wage earners pay a 6.2% tax on their earnings up to a limit of $184,500 (in 2026) and their employers paid a matching amount. Self employed people pay the entire amount of 12.4%. The amount of tax paid is not used in calculating benefits amounts. Payroll taxes are withheld from wages and put into trust funds.

2. The Trust Funds.

The Trust Funds are accounts that hold Special US Treasury Bonds. They are special because they can’t be traded and the interest rate is set by Congress. The funds go into the General Fund of the Treasury to finance government spending like other taxes.

3. Legibility Calculation.

A person is legible for Social Security retirement benefits when they have earned 40 credits. Earning a minimum of $1,890 in a month yields one credit. A maximum of 4 credits can be earned in one year. So conceivably, a person could work four months a year for ten years (earning $7,560 a year) or one month a year for forty years and be legible.

Most of the source info is at https://www.ssa.gov/oact/progdata/fundFAQ.html

We’ll get straight to the point: The financial hardships that Daily Kos is facing this year are tough.

We continue to be paywall-free. We continue to be supported by our readers, not billionaires or corporations. But we need to bring in more revenue. We are leaning on our community more than ever to help make ends meet.

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