With Social Security Trust Funds Rapidly Depleting, Should They Be Invested in Equities?

According to the Center for Retirement Research at Boston College, the trust funds upon which Social Security relies to pay benefits are rapidly depleting. These funds, typically invested in Treasury securities, are projected to run out by 2034, leaving only 80% of the promised benefits payable.

As the impending depletion date approaches, there is growing discussion about whether it makes sense to invest some of this money in the stock market.

"Theoretically, yes," stated Anqi Chen, Senior Research Economist and Assistant Director of Savings Research at the Center for Retirement Research, which recently published research on this topic.

However, the real-world answer is far from clear-cut, as Chen and other experts point out.

The primary concern is whether the already dwindling funds can afford to allocate money to stock investments while still meeting their existing benefit obligations. These obligations are on the rise due to the aging baby boomer population, with approximately 10,000 individuals turning 65 every day.

In 2010, there were 53 million Social Security beneficiaries, the year preceding the commencement of baby boomers reaching age 65, according to the Peter G. Peterson Foundation in New York, an organization that focuses on fiscal and economic challenges in the U.S. This number is expected to swell to 77 million beneficiaries by 2031 as the last cohort of baby boomers reaches their full retirement age.

In the past, Social Security funding shortfalls were addressed in 1983 through a combination of tax increases and benefit cuts, including an increase in the retirement age.

Many anticipate that a similar combination of adjustments will be considered once again. Presently, lawmakers remain divided on these potential remedies, with Democrats opposing benefit cuts and Republicans against tax hikes.

A Novel Proposal Involves Stock Investments

Senator Bill Cassidy, R-La., has introduced a novel proposal to address this issue by advocating for investments in stocks on behalf of the Social Security program.

This proposal aims to raise $1.5 trillion, which would be placed into a separate fund dedicated to stock investments. Notably, no Social Security trust fund dollars would be involved in this plan. Instead, the $1.5 trillion investment fund could be funded through borrowing, reallocating resources from other parts of the budget, or by selling government assets.

The investment would be placed in escrow for a period of 70 years, allowing the funds to grow over time."