Opinion: Bond-rout reveals Social Security’s insanity
Opinion: Bond-rout reveals Social Security’s insanity

Opinion: Bond-rout reveals Social Security’s insanity

As social security rushes towards one $ 20 trillion black holethe thing to understand is that if America’s most important retirement plan fails, it will not be a coincidence.

It will be design-wise.

The entire program is based on the policy of investing every single nickel of your retirement dollars in abysmal investments whose only merit is that they help support Washington, DC, spending bonanza.

Every dollar of yours invested in the Social Security Fund is invested in low-yield government bonds. The same bonds that the market is currently dumping in panic because they are such a money-losing disaster.

It’s not me who’s talking, just in case you’re wondering. This is the federal government itself. Socialtilsynet here reports that it is currently investing all of your new FICA taxes this month in special U.S. government bonds and paying 2.5% in interest.

Inflation, as you may have heard, is currently running at 8.5%, even if you believe the latest figures. So your new FICA taxes lose you 6% a year.

Last month, when inflation was 7.9%, your FICA taxes were invested 2% per year.

The U.S. Department of Labor reports it for the whole of 2021, “From December 2020 to December 2021, consumer prices for all goods rose 7.0 percent.”

The interest rates on your social security dollars during that period? Oh, 1.4%.

I’m wondering why the system is in trouble?

This is not accidental. The Social Security system was established in the 1930s to help fund Franklin Roosevelt’s New Deal. The entire trust fund is required by law to be invested in government bonds, and no one in Washington wants to change the system – for obvious reasons.

Politicians of all kinds like to take your hard earned money and spend it on pig barrel projects that help them get re-elected. They calculate, probably correctly, that when you realize what is actually happening, it will be too late.

Defenders of this racket insist that there is no alternative. One can not invest social security in anything other than government bonds, they say. It is simply impossible.

For some reason, which is never fully explained.

Truly incredible that any other retirement plan in America manages it. (As well as internationally.)

Across this country, over 6,000 state and local government pensions are invested in the usual assets you expect in a pension plan: stocks, real estate and so on. According to Boston College’s Center for Retirement Research these funds manage $ 4.5 trillion in total, which means that they are about 50% larger than the entire social security fund. So much for the ridiculous claim that social security is simply too big to invest elsewhere than in government bonds.

About 80% of the funds of these funds are invested in things other than bonds: Mostly public equities, but also private equity, real estate, commodities, hedge funds and so on.

Last year, these plans yielded an average return of 29%.

According to Boston College, the average return earned by state and local pension plans over the past 5 years has been 11.8% per year. Their average return over 10 years has been 9.5%. Their average return over 15 years has been 7.9%. Their average return over the last three decades has been 8.88%.

Not once in this millennium has Social Security earned 8.8% a year. Not to mention something louder.

The average annual return from 2000 to 2021 was less than 3.2%.

To put this in context, invest $ 1 to 8% a year for 30 years and you end up with $ 12.60.

Invest it at 3.2% a year and you will end up with $ 2.60.

The hole in Social Security jumped another $ 3 trillion last year, and it will no doubt get bigger again this year. The Social Security Trust Fund is expected to start running out of money in about a decade, at which point people in Washington will either start raising our taxes, cutting our benefits, or (one suspects) both. When that happens, expect the usual excuses, finger pointing, blurring and lies.

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