Had we adopted proposals from the 1990s, the trust fund would be richer today

by Steve Levy

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When the Social Security system was established in 1935, it had 42 workers for every retiree. Today, the ratio is a mere 2-to-3. At this rate, the system must reduce benefits to every retiree by about 21% in 2033 if nothing is done to shore it up.

Proposed fixes include significant tax increases on all taxpayers, raising the retirement age and further taxing Social Security recipients. Each of these options would be painful.

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 funds.

Even officials supporting investment diversity hold back, fearing claims from the opposition party or media 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 resulting from stock investments are totally unfounded. In fact, it is shocking how much money has been lost to the system over the past 20 years because of the overly cautious investment schemes propagated by those managing the Social Security trust funds.

Despite the market’s most volatile times, such as the aftermath of 9/11, the pandemic or the real estate crash of 2007, had the trust funds been invested in a Standard & Poor’s index fund in 2005, they would now be flush with $6.4 trillion more than they are. Privatizing just 25% of the funds would have resulted in an additional $13,775 per person.

In 2005, the Social Security trust funds held $1.81 trillion. In 2025, the funds were 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% over that period. The index was 1,181 in January 2005. By January of this year, it 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 could remain under the control of individuals, who could open their own 401(k)-type account that would grow over the years.

Concerns regarding a potential wipeout of the pension funds are unfounded because 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, their money would have grown substantially 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 fund reserves and placing it in a stock market index fund, is not new. It was one of several recommendations proposed in a federal panel, the Social Security Advisory Council, in 1996.

Had we adopted those proposals in the 1990s, 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, declining to approximately $2.721 trillion in 2024, a depletion of approximately $187 billion in just four years. Consequently, immediate action is required.

New York’s flush pension fund has grown exponentially more than 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 assets, and real estate investments diversify the portfolio even more. Despite investing 57% of the fund in equities, the state has never reached a point where the fund was in jeopardy. The rates of return for the New York Pension System from 2005 to 2025 were relatively healthy, at 4.2%, as opposed to 2.2% from Social Security. In 2023-2024, the fund brought in a more than 11% return.

A typical portfolio adviser will recommend that senior citizens 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 our government should take. Even if we had started with just 25% of the trust funds invested in a Standard and Poor’s index, it would solve many of the problems plaguing the system.

Steve Levy is executive director of the Center for Cost Effective Government, a fiscally conservative think tank. He served as executive of Suffolk County, New York, as a New York State Assembly member and as host of “The Steve Levy Radio Show.”