The future funding problems of Social Security could be solved by an old idea. Invest a portion of the Social Security Trust fund in a stock market index fund, rather than putting it all in U.S. Treasuries.
At the end of 2012 there was a $2.732 Trillion surplus in the fund. All of it was invested in Treasury debt that does not even keep up with the inflation rate. The surplus monies, in the Trust funds, have been “borrowed out” by our legislators to fund the voter’s hand outs that are enjoyed today.
Therefore, in the future the U.S. Treasury will have to borrow $2.732 trillion from the public (or foreign countries or the Federal Reserve) to repay the borrowings. Under the “static” scenario all the monies will be gone by 2035. The present value of the next 75 year shortfall will be $9.6 Trillion (Don’t you just love what a socialistic program does for your pocketbook?)
What are some options to fix this: (1) Increase taxes or (2) reduce benefits… both politically devastating. Ten years ago George W. Bush proposed privatizing a PORTION of Social Security. The outcome: The media and the Democratic House and Senate nearly lynched him. The public, on the other hand, did not make any noise to save their own fate.
A third option is to index a portion of the Trust fund into a broad spectrum of U.S. common stocks. It is not privatization nor individual ownership. Rather, it is investing a portion of the monies into a diverse common stock index.
Some people say investing in the Great Companies of America is a gamble. Social Security, in its present state, is not a gamble??? It is a bet that has already been lost. Historically, long term indexing would have increased Social Security assets compared with equal investments in Treasuries over any investment horizon.
Yes, there have been periods during which there were no real gains in the stock market (1929 – 1954 and 2000 – 2013). This program would be using the power of dollar cost averaging. In addition, the effect of dividend reinvestment would have been overwhelmingly beneficial. The S&P 500, exclusive of dividends grew 94 times from 1935 to 2011. When you add in the dividends, over the same time period, the increase “was” 1,686 times.
The opposition to this idea will come from your Washington representatives. All they know how to do is raise taxes. It goes back to the old adage: If you only own a hammer, then, you see every problem as a nail.
Write to your representatives on this idea on indexing, now, so things will be “right” for you later!
Please watch our webinar on “How to double your Social Security benefits while reducing your taxes by 80% in retirement” https://www.youtube.com/watch?v=zfnxhduynbsi.