Ask Rusty – How Do Disability Programs Affect Social Security’s Budget?

Dear Rusty: I read with interest an analysis of the history, reasons, and financial costs of the SSI (Supplemental Security Income) and SSDI (Social Security Disability Insurance) programs. My question is, specifically, what portion of the Social Security budget goes toward SSI and SSDI vs. for regular SS retirement income for those who paid into the fund during their working lives? How are the costs of SSI and SSDI covered by the federal government? When did these two sections of the budget enter the law and what was the impetus behind them? Signed: An Inquiring Mind

Dear Inquiring Mind: No part of Social Security’s “budget” is used to pay SSI (Supplemental Security Income). SSI is a means-tested general assistance program for disadvantaged children and needy disabled adults and aged seniors who have very little income and very few assets. Federal SSI benefits are paid from the government’s General Treasury, not from Social Security Trust Funds. SSI is jointly administered by the person’s state of residence and the Social Security Administration, and the state usually provides additional benefits to supplement the financial assistance provided by the federal government under the SSI program. The Social Security Administration only administers the SSI program, it does not fund it.

By contrast, SSDI (Social Security Disability Insurance) benefits are for employed Americans who become disabled and unable to work full time. SSDI benefits are meant to provide limited income replacement for the disabled worker, and those benefits are paid from a separate Social Security “DI” (Disability Insurance) Trust Fund. The DI fund receives a portion (0.9%) of the FICA SS payroll taxes every American worker pays on their earnings and is used to pay disability benefits to eligible American workers who are unable to perform “substantial gainful activity” for a year or more. The eligibility criteria to collect SSDI are very strict, but those approved receive their benefits from this separate DI trust fund, not from Social Security’s Old Age and Survivors Trust Fund. Payroll taxes collected for disability purposes are deposited in the DI Trust Fund as interest-bearing government bonds, and those DI assets are redeemed as needed to pay SSDI benefits. FYI, SSDI (disability) benefits stop when the person reaches full retirement age, at which point the beneficiary is automatically switched to regular SS retirement, and after which their benefits are paid from the regular “OASI” Trust Fund.

“Regular” Social Security retirement benefits, spousal benefits, dependent benefits, and survivor benefits are paid from Social Security’s Old Age and Survivors Insurance (0ASI) Trust Fund, which receives most (5.3%) of the 6.2% FICA Social Security tax withheld from the paychecks of American workers. As of the end of 2022, the OASI Trust Fund held about $2.7 trillion in interest bearing government bonds. Neither SSI or SSDI affect this “regular” OASI Trust Fund – only true SS retirement benefits and benefits for dependents of the retiree are paid from the OASI Trust Fund (As an aside, Social Security reform is needed to prevent the OASI Trust Fund from being fully depleted in 2033).

To answer your last questions, the Social Security Disability Insurance (SSDI) Trust Fund was established in 1956, after which SSDI benefit payments to eligible disabled American workers began. Federal “Supplemental Security Income” (SSI) assistance was codified into law in 1974. And, as you likely know, Social Security retirement, spousal and dependent benefits were enacted in the 1930s, before the first monthly Social Security check was mailed in January 1940. The impetus behind these programs? Avoiding poverty for the neediest among us. Without these programs, at least 22 million more Americans would be living below the poverty line.

-This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at [email protected].