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Putting stock in Social Security

By Jennie L. Phipps ·
Monday, November 25, 2013
Posted: 3 pm ET

One way to shore up the Social Security trust fund is to invest it in something with a better return than U.S. Treasury bonds.

The idea has been floated off and on for years and is always rejected. But, when Steven Sass, research economist for the Center for Retirement Research at Boston College, recently took a hard look at the issue, he found a good reason to reconsider. The U.S. government's Railroad Retirement program has invested in equities since 2001. Taking this step has shored up the program despite market downturns in 2001 and 2008.

The program is designed so that when stocks are producing high returns, the railroad employers and employees pay less into this retirement planning system. When the market flounders, the downturn triggers a decline in the ratio of the railroad trust fund assets to annual benefit payments, averaged over 10 years. Fund assets must stay within a target band of four to six times outlays. If they aren't, then employer and employee payments automatically increase.

Since the program was instituted about a dozen years ago, contributions were lowered from the historic employer plus employee payroll tax level of 18 percent to 17 percent and then to 16 percent for six years from 2007 to 2012. In 2013, the delayed reaction to the 2008 downturn pushed the payroll tax level back to 17 percent. The program remains financially stable with contributions still lower than they were before the investment program was initiated.

Sass sees a similar approach as a good way to fix Social Security. "If Congress could come to an agreement about who bears the downside and what we do with the upside, we should do better in the long run than just investing in government bonds," he says.

Sass says he believes that any plan would need to call for professional management that keeps political influence at bay and focuses on something like index funds that are primarily passive investments. He also said he thinks the adoption of investing in equities must be accompanied by further reform in the way that Social Security responds to risk.

"Our system is off the rails very badly, but everybody just yawns," he says. "If we had a mechanism that automatically cut benefits and raised taxes to bring the system back into balance over a 20- to 30-year period, we wouldn't be nearly as off track as we are today."

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November 27, 2013 at 10:56 am

Yea, let's turn SS over to the Wall Street bankers. The same Wall Street bankers that brought this nation to its knees in 2008 with their housing scheme. Yea, that sounds like a good plan.

November 27, 2013 at 10:33 am

I think they should do away with SS and let people keep their own money. If I am going to invest it in the stock market who is watching? I would rather put it their myself.

charles dildine
November 27, 2013 at 10:17 am

the problem ,as i see it ,is that there are many people getting social security benefits who never put into the system. because we have created an environment of spending what we do not have then the political entities are looking for ways to shore up the debt on the backs of those who honestly gave into the system during their work life. identify those who are not paying into the system-people and businesses -and make them accountable. too many people want handouts without paying the price.

November 27, 2013 at 10:11 am

I agree with Dave remove the cap limit on earnings. Also remember if Bush had his way in 2008 when the market took a dump our senior citizens would be broke and even homeless.The market is controlled by big business and the greed of their management.(stock market bad idea)

November 27, 2013 at 9:02 am

Just lift the cap on Social Security that would fix the issue.

November 27, 2013 at 8:02 am

Don't you remember Bush wanted to do that and was shot down

November 27, 2013 at 7:11 am

Don't miss the hidden message "If we had a mechanism that automatically cut benefits and raised taxes to bring the system back into balance over a 20- to 30-year period, we wouldn't be nearly as off track as we are today."

Seniors and retiree's CANNOT afford to have their benefits CUT with a downturn. They need to put the funds in a lock box and tax all earned income.

November 27, 2013 at 7:08 am

Unfortunately, Social Security in its current state, is not always going to "be there." Many worry about the market crashing and losing all of the Social Security funds intended for retirees. Even though historically, funds invested may decline - over a ten year period the principal typically increases - usually by 100%. Having said this, I'm in the group who fear the worst if Social Security benefits are invested - even though I know the chance of that occurring is extremely slim.

November 27, 2013 at 6:12 am

There should be no downside. No limit or strings on upside. Who do you think the government will bale out first,banks or social security? Social security was designed to always be there, not only if the market is in good shape. It seems this idea is only considered when market is in good shape.

November 27, 2013 at 5:39 am

The key phrase here is "[professional management that keeps political influence at bay" don't see that happening in today's Washington.