Opinion: Bond rout exposes Social Security madness


As Social Security hurtles towards a $20 trillion black hole, the thing to understand is that if America’s main pension plan fails, it won’t be by accident.

It will be by design.

The whole program is based on the policy of investing every penny of your retirement dollars in abysmal investments whose only merit is that they help sustain Washington, DC’s spending bonanza.

Every dollar you invest in the Social Security trust fund is invested in low-yielding government bonds. The same bonds that the market is currently dumping in a panic because they are such a money-losing disaster.

That’s not me talking, just in case you were wondering. It is the federal government itself. The Social Security Administration reports here that it is currently investing all of your new FICA taxes this month in special US Treasury bonds paying 2.5% interest.

Inflation, as you may have heard, is currently at 8.5%, even if you believe the latest numbers. Thus, your new FICA taxes cause you to lose 6% per year.

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

The U.S. Department of Labor reports that for all of 2021, “from December 2020 to December 2021, consumer prices for all items increased 7.0 percent.”

Interest on your Social Security dollars during this time? Ah, 1.4%.

Gee, I wonder why the system is in trouble?

It is not a coincidence. The Social Security system was set up in the 1930s to help fund Franklin Roosevelt’s New Deal. The entire trust fund is required by law to be invested in Treasury bonds and no one in Washington wants to change the system, for obvious reasons.

Politicians of all stripes like to take your hard-earned cash and spend it on hog barrel projects that help them get re-elected. They think, probably rightly, that by the time you realize what is really going on, it will be too late.

Defenders of this racquet insist that there is no alternative. You can’t invest Social Security in anything but Treasury bills, they say. It’s just not possible.

For some reason that is never quite explained.

Amazing, really, that every other pension plan in America runs it. (As well as internationally.)

Nationwide, more than 6,000 state and local public pensions are invested in the usual assets you’d expect from a retirement plan: stocks, real estate, and more. According to Boston College’s Center for Retirement Research, these funds manage $4.5 trillion in total, which means they’re about 50% larger than the entire Social Security trust fund. So much for the ridiculous claim that Social Security is just too important to invest in anywhere other than treasuries.,

About 80% of the money in these funds is invested in things other than bonds: mostly public stocks, but also private equity, real estate, commodities, hedge funds, and more.

Last year, these plans achieved average returns of 29%.

According to Boston College, the average returns for state and local pension plans over the past 5 years have been 11.8% per year. Their average 10-year returns were 9.5%. Their average returns over 15 years were 7.9%. Their average returns over the past three decades have been 8.88%.

Not once in this millennium has Social Security gained 8.8% per year. Let alone something higher.

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

To put this into context, invest $1 at 8% per year for 30 years and you’ll end up with $12.60.

Invest it at 3.2% per year and you’ll end up with $2.60.

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


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