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The trust funds that Social Security relies on to pay benefits are “rapidly heading to zero,” according to the Center for Retirement Research at Boston College.
Those funds, which are typically invested in Treasury securities, are projected to run out in 2034, at which point just 80% of benefits may be payable.
As that date draws closer, that has prompted more discussion as to whether that money should also be invested in stocks.
“Theoretically, yes,” said Anqi Chen, senior research economist and assistant director of savings research at the Center for Retirement Research, which recently published research addressing the question.
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But the real-world answer is not necessarily clear-cut, Chen and other experts say.
The problem is whether the funds, which are already running low, may be able to come up with the money to invest in stocks while also paying the benefits it owes.
Those benefit obligations are growing as baby boomers age, with 10,000 individuals turning 65 every day.
There were 53 million Social Security beneficiaries in 2010, the year before baby boomers started turning 65, according to the Peter G. Peterson Foundation in New York, which focuses on fiscal and economic challenges facing the U.S.
This ‘big idea’ fix would rely on stocks
Sen. Bill Instead, the separate $1.5 trillion investment fund may come from either borrowing the money, raising the funds from other parts of the budget or by selling government assets.
The investment would be held in escrow for 70 years, which would allow the funds to grow.
It always will have enough revenue coming in from the investments to pay scheduled benefits.
Sen. Bill Cassidy
“Never again will we worry about a Social Security shortfall,” Cassidy said at the AARP event. Bill How Cassi The The Certain The Congress must approve the investments it can offer.
Financial industry experts who have evaluated the plan have said the return expectations are conservative and would have a negligible effect on the equity market, according to Molly Block, a spokeswoman for Cassidy.
Why experts are cautious
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While it would be up to Congress to approve any changes to Social Security’s investment strategy, experts question the inevitable risks.
- Generally, one of the prerequisites for investing Social Security in stocks is having the money to do it. In the 1990s and 2000s, when the idea was previously discussed, the trust funds had more money available to invest, according to Chen. Now, there may have to be a tax increase to not only shore up Social Security’s current funding shortfall, but also provide additional funds to be invested in equities.
“Theoretically, yes that could work,” Chen said. But “
- Borrowing money to invest in stocks for retirement is a risky move, regardless of whether it’s in an individual’s 401(k) plan or a government retirement plan, noted Andrew Biggs, senior fellow at the American Enterprise Institute.
- “It’s basically taking a bet on stocks versus bonds,” Biggs said. It “
Moreover, while a 4% or 5% risk premium can make a big difference over a 30-to-50-year time horizon, there’s no guarantee those terms won’t change along the way, which could interfere with Social Security as a guaranteed government program, noted David Blanchett, managing director and head of retirement research at PGIM DC Solutions.
“It’s just not realistic to expect that things wouldn’t change in the interim,” Blanchett said. ” “