Describe the role and funding of Social Security trust funds and concerns about long-term solvency.

• A. They are funded by earmarked payroll taxes; concerns include demographic shifts and rising costs.
• B. They are funded solely by general revenues.
• C. They have no solvency concerns.
• D. They pay only retirement benefits, not disability or survivors.

Answer: (A)

Social Security trust funds are financed by earmarked payroll taxes dedicated to OASI and DI, with additional earnings from the Treasury securities they hold. This means the program is funded primarily through taxes on workers and employers, not from general budget revenues. Long-run solvency worries come from demographic and cost pressures: as more baby boomers retire and life expectancy grows, there are fewer workers per beneficiary and already promised benefits become more expensive to deliver. When tax receipts and interest income aren’t enough to cover ongoing benefits, the trust funds’ reserves can run down, signaling the need for policy changes to restore solvency. That’s why this option is the best fit. The other statements don’t fit: general revenues aren’t the sole funding source, solvency concerns do exist, and disability and survivors benefits are also paid, not just retirement.