How Would Investing in Equities Have Affected the Social Security Trust Fund?

Abstract

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How best to annuitize defined contribution assets?

“…69 Of course, many observers believe equity returns will be lower in the future than in the past. 70 Therefore, the analysis adjusts real equity returns based on methods outlined in Burtless et al (2016) updated with current returns data. 71 Based on these methods, the simulations anchor the average of 1,000 equity returns to equal 4.5 percent, in real terms.…”

“…69 The historical data for equity returns are from the Ibbotson Large Cap Index and Wilshire 5000, updated to 2018. See Burtless et al (2016) for more detail. 70 Many industry and academic experts believe future equity returns will be lower than historical returns, mainly due to a decline in the risk-free rate.…”

“…Finally, globally an increasing share of assets is invested in safe assets such as Treasury bonds, lowering average returns. 71 Burtless et al (2016) examines three approaches to determine what future equity returns might be. The first is to look at the inverse of the price/earnings (P/E) ratio.…”

“…The historical data for equity returns are from the Ibbotson Large Cap Index and Wilshire 5000, updated to 2018. See Burtless et al (2016) for more detail.…”

The Future of Social Security

“…The idea of investing part of the TF in stocks, mentioned above, has been dormant for a long time. I was very interested to see Alicia Munnell and her colleagues (Burtless et al ) call for it in a recent issue brief for the Boston College Center for Retirement Research. Their position is that in terms of financial risk, both retrospective and prospective analyses suggest that equities would improve Social Security's finances.…”