By Steve Levy
When the Social Security system was first established in 1935, there were 42 workers for every retiree. Today, it’s a mere 2-3. At this rate, it is estimated the system will have to reduce benefits to every retiree by 21% in 2033 if nothing is done to shore it up.
Proposed fixes include significant tax increases on all taxpayers, raising the retirement age, or further taxing Social Security recipients themselves. Each would be very painful.
However, there is a better way.
For decades, some analysts have recommended allowing for investment of at least some Social Security funds in the stock market, as opposed to very conservative treasury notes. Unfortunately, this suggestion has dead-ended, primarily because of the irrational fear that any investment in equities would inject too much risk into the stability of the Social Security Trust Fund.
Even officials supporting diversity in investments are holding back, fearing blowback from the opposition party or the media making claims that the pro-investment officials are seeking to risk or cut the Social Security payments for millions of Americans.
A quick analysis clearly proves that these concerns about system losses as a result of stock investments are totally unfounded. In fact, it is shocking how much money has been lost to the system over the last 20 years because of the overly cautious investment schemes propagated by those managing the Social Security Trust Fund.
Despite the most volatile times of the market, such as the aftermath of 9/11, the pandemic, or the real estate crash of 2007, had the Trust Fund been invested in a Standard & Poor’s index fund in 2005, it would be flush with an additional $6.4 trillion than is presently the case. Privatizing just 25% of the fund would have resulted in an additional $13,775 more per person.
In 2005, the Social Security Trust Fund held $1.81 trillion. In 2025, the fund was at $2.8 trillion. This is an increase of 55.6%, a paltry 2.2% per annum.
Meanwhile, the Standard and Poor’s Index rose an average of 9.82% ove r that same period. The index in January of 2005 was at 1,181. By January of this year, that number was 5,979, an astonishing 406% increase.
There are two ways to seek greater returns through the market to strengthen the Social Security system. One mirrors that prescribed by former presidential candidate Steve Forbes, whereby younger Americans would be empowered to have greater control over the taxes they lay out for the Social Security system. Instead of all their FICA taxes going to the government, a portion can remain under the control of individuals, who can open their own 401(k)-type account that will grow over the years.
Concerns regarding a potential wipeout of the pension funds are unfounded since the money isn’t all invested or withdrawn at the same time, and the performance in a single year is not make or break.
Versions of this program have been successfully implemented in other nations, including Sweden and Australia. If a person began contributing to Sweden’s Premium Pension system in 2005 and invested in the default government-managed fund, they would have seen strong growth over the past 20 years, averaging about 14% annual returns. In some standout years, such as 2021, 2023, and 2024, the fund returned 31.5%, 18.4%, and 27.3%, respectively.
The other option — taking a portion of the trust fund reserves and placing it in a stock market index fund — is not a new one. It was one of the several recommendations proposed in a federal panel, circa 1996, entitled the Social Security Advisory Council.
Had we adopted those proposals in the nineties, or even in 2005 as suggested, the trust fund would have been far richer today, alleviating the need for panic.
Since then, the reserves have slowly been depleting. They peaked at approximately $2.908 trillion in 2020, lessening to approximately $2.721 trillion in 2024 — a depletion of approximately $187 billion in just four years. Consequently, immediate action is required.
New York State’s flush pension fund has grown exponentially, compared to the Social Security fund. That’s because its sole fiduciary, the state comptroller, diversifies the fund’s investments. Bonds constitute a mere 22.07% of the overall investments, and real estate investments diversify the portfolio to an even greater extent. Despite investing 57% of the fund in equities, there has never been a point where the fund was in jeopardy. The rates of return for the New York Pension System from 2005 to 2025 was a relatively healthy 4.2% as opposed to 2.2% from Social Security. In 2023-24, the fund brought in a return of over 11%.
A typical portfolio advisor will recommend that seniors place the majority of their money in safe bonds, but have at least some funds in higher growth options to expand the aggregate while hedging against downturns. That’s the route that our government should take. Even if we started with just 25% of the Trust Fund invested in an Standard and Poor’s index, it would solve a good deal of the problems that are presently plaguing the system.
Steve Levy is Executive Director of the Center for Cost Effective Government, a fiscally conservative think tank. He served as Suffolk County Executive, as a NYS Assemblyman, and host of “The Steve Levy Radio Show.”