What Are the Costs and Benefits of Social Security Investing in Equities?

The brief’s key findings are:

• One option for helping address Social Security’s long-term financial health is to shift a portion of its trust fund reserves into equities.
• Of course, equities would expose the program to greater financial risk.
• However, in terms of financial risk, both retrospective and prospective analyses suggest that equities would improve Social Security’s finances.
• In terms of critics’ concerns:
  • little evidence exists that trust fund equity investing would disrupt the stock market;
  • the experience with the Thrift Savings Plan for federal employees provides a road map for separating the government from investment decisions; and
  • accounting for returns on a risk-adjusted basis would avoid the appearance that substituting stocks for bonds provides magic money.