The US and the Great Missed Opportunity: Why Social Security Should Have Been an Investment Powerhouse

Imagine this: the United States could have a trillion-dollar investment fund, generating stable, recurring revenue to help pay for Social Security—a program millions of Americans rely on for retirement. But instead, they've stuck with a system that operates more like a piggy bank: current workers pay into the system, and that money is immediately handed out to retirees. No wealth-building. No investments. Just a cycle that's increasingly struggling to keep up with demand.

This isn't just an oversight; it's a colossal missed opportunity. Let's dive into the context, the case for a change, and why it's time to rethink how the US approach Social Security.

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The Context: How Did We Get Here?

When Social Security was established in 1935, it was a lifeline for retirees devastated by the Great Depression. The pay-as-you-go model made sense then: it got money into retirees' pockets quickly without requiring decades of investment to grow a fund.

Fast forward to today, and that system is starting to crack. Demographic changes—like an aging population and a shrinking ratio of workers to retirees—are straining the system. By the 2030s, Social Security is expected to start running out of money unless Congress takes action. And yet, the solution staring them in the face—investing Social Security proceeds—has been ignored.

Figure 1. Social Security obligations are outpacing the income, making it another unsustainable costly burden on the US deficit.

Why Investing Social Security Proceeds Makes Sense

Let's talk about why this approach works elsewhere and why the US is leaving money on the table.

1. Higher Returns Are Waiting

Currently, Social Security's trust funds are invested almost entirely in US Treasury bonds, which yield around 2–4% annually. Compare this to the 7–10% average annual returns of a diversified portfolio of stocks and bonds over the long term. Imagine what those higher returns could mean for the solvency of the program.

2. Global Success Stories

Countries like Norway and Canada have shown that investing national funds works.

Norway's Government Pension Fund Global (commonly called "The Oil Fund") was built using oil revenues and is now worth over $1.3 trillion, funding public services and securing wealth for future generations.
Canada's CPP Investment Board invests pension contributions in a globally diversified portfolio, growing the fund to over $500 billion while keeping the system solvent for decades to come.

These funds prove that with proper governance and professional management, national investment funds can thrive.

3. Addressing Social Security's Challenges

With an aging population, Social Security faces increasing liabilities, making up a significant portion of the US budget deficit. In 2022 alone, Social Security expenditures accounted for roughly 20% of federal spending, contributing heavily to the national deficit of over $1.4 trillion. Without reform, these costs will continue to rise as more baby boomers retire. A diversified investment fund could generate steady income to offset these liabilities, reducing the need for tax hikes or benefit cuts. This shift would also stabilize the program's finances, creating a more self-sustaining system and easing fiscal pressure on the federal budget.

4. Stabilizing Markets and Broadening Participation

Social Security collects about $1.3 trillion annually in payroll taxes. If even a portion of that amount were invested in a diversified portfolio, it would create a powerful, stabilizing force in financial markets.

Such an approach would also make the benefits of market growth more equitable. Currently, wealthier Americans, who are more likely to own stocks, reap the rewards of market innovation and growth. By investing Social Security proceeds, the average individual—including lower-income workers who don't typically have access to the stock market—could benefit from the nation's economic success.

5. Supporting National Priorities

An investment-based Social Security fund could also align with broader government initiatives. For example, the fund could direct some investments into clean energy projects, advanced technologies, or infrastructure development. These investments would serve as assets rather than liabilities, reducing the need for government incentives or subsidies to the private sector. By leveraging its investments, the government could push forward innovation and sustainability while earning returns.

Why the US Hasn't Done It

If investing Social Security proceeds makes so much sense, why hasn't it happened? There are a few reasons—and they're frustrating.

1. Fear of Market Risks

Critics argue that investing in stocks and bonds exposes Social Security to market volatility. What if there's a recession? What if the fund loses money? These are valid concerns, but they're solvable:

Diversification reduces risk.
Long-term investing—decades, not years—smooths out market fluctuations.
Other countries have weathered market downturns without jeopardizing their funds.

2. Political Paralysis

The idea of the government investing in private markets triggers political alarm bells. Opponents worry about "government picking winners and losers" or gaining too much influence over private companies. However, funds like Canada's CPP Investment Board are managed independently, proving it's possible to keep politics out of it.

3. Transition Costs

Moving to an investment-based system would require upfront costs to keep benefits flowing to current retirees while the fund grows. This is a legitimate hurdle but hardly insurmountable. Creative solutions, like gradually phasing in investment strategies, could minimize disruptions.

What Could Have Been (And Still Could Be)

Let's imagine an alternate timeline where the US began investing Social Security proceeds decades ago. With even modest returns, the fund could be worth trillions today, generating income that makes the program sustainable for generations.

It's not too late to start. The US could:

Create an Independent Investment Board: Modelled after Canada's CPP Investment Board, this entity would manage the fund professionally and independently, ensuring transparency and accountability.
Start Small: Begin by investing a portion of the trust fund in a globally diversified portfolio. As the fund grows, increase the share of assets invested.
Boost Economic Resilience: A national investment fund could help stabilize markets during economic downturns, providing a countercyclical force that reduces volatility and builds confidence.
Educate the Public: Americans need to understand the benefits of this approach and how it would secure Social Security's future.

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Time to Reimagine Social Security

The US is facing a retirement crisis, and clinging to outdated models isn't helping. Investing Social Security proceeds could transform the program from a fragile safety net into a resilient, wealth-building powerhouse—one that ensures security for future generations without putting undue strain on workers or taxpayers.

An investment-based approach could also make their economy more equitable by allowing all Americans to benefit from market growth, not just those who own stocks. It would enable the government to support national priorities, like clean energy and innovation, as an asset rather than a liability. And it could reduce the deficit, stabilize markets, and build resilience into the financial system.

The opportunity is there. The question is: will they seize it, or will they continue to let it slip away?

It's time for bold action. If Trump wants to leave a lasting legacy on the US economy and its prosperity it starts here...Social Security as an investment in America's future, not just a relic of its past.

References

Brookings Institution. (2024). The Role of Social Security in Economic Resilience

Canada Pension Plan Investment Board (CPPIB). (2024). Annual Report

Center for Retirement Research at Boston College. (2024). Should Social Security Invest in Equities?

Congressional Budget Office (CBO). (2024). Budget and Economic Outlook 2024-2034

International Energy Agency (IEA). (2024). World Energy Investment Report 2024

National Bureau of Economic Research (NBER). (2024). Wealth Inequality and Social Security Reform

Norges Bank Investment Management. (2024). Norway’s Government Pension Fund Global Annual Report

Peterson Foundation. (2024). Solutions to America’s Fiscal Challenges

Social Security Administration (SSA). (2024). Annual Trustees Report

U.S. Treasury. (2024). Monthly Treasury Statement

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