What are the costs and benefits of Social Security investing in equities?

Abstract

The brief's key findings are: (1) One option for helping address Social Security's long-term financial health is to shift a portion of its trust fund reserves into equities. (2) Of course, equities would expose the program to greater financial risk. (3) However, in terms of financial risk, both retrospective and prospective analyses suggest that equities would improve Social Security's finances. (4) In terms of critics' concerns: (a) little evidence exists that trust fund equity investing would disrupt the stock market; (b) the experience with the Thrift Savings Plan for federal employees provides a road map for separating the government from investment decisions; and (c) accounting for returns on a risk-adjusted basis would avoid the appearance that substituting stocks for bonds provides magic money.