A proposal to allow the trust fund to invest in the market has some merit, but would be a huge leveraged bet.
I have been a pension nerd since I was 20 years old. So I have been hearing for literally decades that there is a simple, magical solution to all our retirement funding problems: Just take more risk! When the investments pay off, the coffers will be replenished and all will be well.
Now two US senators, Republican Bill Cassidy of Louisiana and Democrat Tim Kaine of Virginia, have offered a bipartisan proposal to create a separate fund for Social Security, whose existing trust fund can invest only in US government bonds. The new fund would be allowed to invest “in stocks, bonds and other investments that generate a higher rate of return.”
There is some merit to their idea. But make no mistake: This would be a huge leveraged bet on behalf of the taxpayer. And — spoiler alert — taking risks doesn’t always work. Many public-sector pensions are underfunded, despite their ability to invest in a market that has seen some pretty stellar returns over the last 20 years.
Continue reading the entire piece here at Bloomberg Opinion (paywall)
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Allison Schrager is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.
Photo by Jim West/UCG/Universal Images Group via Getty Images
