Social Security is heading towards a $20 trillion hole. The thing to remember is that America’s main pension system will not fail.
It will be designed.
The whole program is built on the idea of investing every nickel of retirement money in terrible investments that only have one merit: they help to support Washington, D.C.’s spending spree.
Every dollar you have invested in the Social Security trust funds is used to purchase low-yielding bonds. These are the same bonds that panic-stricken investors are dumping because they are a money-losing catastrophe.
Just in case you were wondering, this is not me speaking. This is the federal government. Here, the Social Security Administration reports that all FICA taxes are currently being invested in special U.S. Treasury Notes paying 2.5% interest.
As you may have heard inflation is running at 8.5% currently, even though the latest figures are not accurate. Your new FICA taxes are reducing your income by 6% per year.
Your FICA taxes were invested at 2% per year last month when inflation was 7.9%
According to the U.S. Labor Department, prices for all products rose 7.0% between December 2020 and December 2021.
What was the interest on your Social Security money during this time? Oh, 1.4%.
Gee, I wonder what the system is up to?
This is not an accident. Social Security was established in 1930s to finance Franklin Roosevelt’s New Deal. The law requires that the entire trust fund be invested in Treasury bonds. Washington has no desire to alter the system, for obvious reasons.
All political parties love to spend their hard-earned money on pork barrel projects that will help them win re-election. They believe that it’s too late when you realize what’s really happening.
This racket’s supporters insist that there is no alternative. They claim that Social Security cannot be invested in any other than Treasury bonds. It is simply impossible.
Some reason is not explained.
It is amazing that this pension plan is managed by any other in America. (Also internationally.
Over 6,000 public state and local pensions across the country are invested in stocks, real estate, and other assets that you would expect to find in a pension plan. These funds, which total $4.5 trillion, are roughly half of the entire Social Security trust fund according to Boston College’s Center for Retirement Research. This is the absurd claim that Social Security cannot be invested in other than Treasury bonds.
Around 80% of these funds invest in other things than bonds. This includes public stocks but also private equity and real estate as well as commodities and hedge funds.
These plans had an average return of 29% last year.
Boston College reports that the average return earned by local and state pension plans over the last 5 years has been 11.8% per year. They have an average return of 9.5% over the past 10 years. They have an average return of 7.9% for the past 15 years. They have earned 8.88% on average over the past three decades.
Social Security has not earned 8.8% per year in this millennium. Even more.
From 2000 to 2021, the average annual return was less than 3.2%.
This is how it works: Invest $1 at 8% per year for 30 years, and you’ll end up with $12.60
You will get $2.60 if you invest it at 3.2% per year.
Social Security’s hole grew by $3 trillion last year. It will continue to grow this year, it is certain. In about a decade, the Social Security trust fund will run out of money. At that point, Washington will either increase our taxes or cut our benefits. Expect the usual excuses, finger-pointing, obfuscation and lies when that happens.