Employers send the money to the U.S. Treasury Department. Workers deposit the money routed to Social Security into two giant trust funds. The money is immediately used to pay benefits to retirees, widows, widowers, surviving children and disabled workers and their families. Leftover cash buys bonds from the Treasury Department. Federal law requires the trust funds to invest all the money into securities backed by the federal government's guarantee it will pay interest and repay the principal investment.
Bonds are loans that pay interest on a set schedule for a fixed amount of time.
The trust funds purchase bonds from the Treasury Department, and the Treasury uses the cash to run the rest of the government. Treasury bonds with maturity dates of 52 weeks or less are called bills or T-bills. Those that mature between one and 10 years are called notes, and those with longer maturity dates are called bonds. Even though precious few advisers would recommend a portfolio made up entirely of Treasury bonds if you wanted, there really is no way for an individual to duplicate the trust funds' portfolios for two reasons. However, the interest rates on the special issue bonds are based on the average rate investors get on regular long-term bonds.