The aging of America is putting the squeeze on Social Security. About 10,000 baby boomers turn 65 every day and the number is heading even higher. Ready or not, our retirement system faces its first major overhaul in decades.
Lawmakers should listen to Warren Buffett before they settle on any new payroll tax or benefit schedules. "I'm a card-carrying capitalist," Buffett says, "I believe we wouldn't be sitting here except for the market system."
Social Security should become a card-carrying capitalist too. It should invest part of its $2.8 trillion trust fund in the stock market, specifically in broad-based, low-cost index funds.
Call it a Wall Street boost for Social Security. It could make the coming overhaul less costly for workers and employers alike. It would effectively give tens of millions of low- to middle-income workers their first share ever in the market. Lastly, it's the smart thing to do: research has shown the reward easily justifies the risk.
Trust fund dollars have always been invested in ultra-safe government securities. The idea of seeking higher returns by putting some of the money into stocks has been proposed before, but it's never gone anywhere.
The coming reform (the first since 1983 and only the second ever) gives Congress a chance to begin making up for lost time.
And for lost opportunities too. By mid-March of 2019, the S&P 500 had risen by more than 300 percent from its financial-crisis low in March 2009. According to Goldman Sachs, the index's annualized gain of over 15 percent represents one of its best decades ever.
The huge bull run didn't add a penny to the Social Security trust fund. In fact the fund's return over the same decade was lower than usual: many of its holdings were paying (and still are) abnormally low interest rates.
All the more reason to make sure a stock market boost becomes part of the overhaul. Let's give the trust fund its first chance for substantial gains. Let's keep pushing back the year the fund runs dry. The program's trustees now estimate it'll happen in 2035. If Congress doesn't act before then, benefits will have to be cut by roughly 20 percent.