Investing the Social Security trust fund in stocks rather than bonds would be a bad idea. That’s because equities don’t always outperform bonds over the long term. Social Security could very well end up in worse financial shape if its trust fund is invested in stocks instead of Treasury bonds, in which current law requires it to do.
Proposals to invest some or all of the Social Security trust fund in equities are not new, of course. The occasion to revisit these proposals now is the release earlier this month of the latest actuarial analysis of the Social Security trust fund, which showed that it, unless something changes, Social Security will only be able to pay 77% of scheduled benefits beginning in 2034. Policy options for overcoming this shortfall have focused on either payroll tax hikes or cutting benefits, or some combination of the two. Read: Social Security is now projected to be unable to pay full benefits a year earlier than expected Neither of these options is politically feasible, of course, since increasing taxes is considered political suicide and cutting benefits—reneging on the government’s promises—is no less politically toxic. Investing the Social Security trust fund in equities is attractive because it appears to offer politicians an escape from the horns of this dilemma. If the trust fund can earn sufficiently more from stocks than bonds, then neither payroll taxes will have to be raised nor benefits cut. My argument agains …
Article Attribution | Read More at Article Source