Radical Idea #3: Diversify the Social Security Trust Portfolio
One radical idea to stop this from happening is to diversify the investments of the Social Security Trust Fund. Right now, the only investments the Social Security Trust Fund can make is with securities issued and guaranteed by the full faith and credit of the Federal Government, like treasury bills for example. So far, with a current 5.5 percent growth rate, these securities are profitable. However, the same government that is backing these securities is falling further into debt, hence the importance of the debt ceiling issue and the subsequent credit rating that was impacted by that decision. If the United States of America loses it high credit rating, the growth of US-backed securities will decrease, based on comparative bond markets.
If your pension fund or 401k only invested in one type of security in the open market, you would have limited growth toward your retirement. Furthermore, if you were allowed to borrow from it annually and not required pay it back at the rate of projected growth, you would eventually have a retirement fund that is empty when it is time for you to draw from it despite the monthly assets you put into it. That is the best explanation to break down what is happening now with the Social Security Trust Fund.
The best way to alleviate the pressure caused by these events is to allow the trust fund to invest 33 percent of the fund into more diverse, high growth portfolios. Congress needs to act to allow our Social Security Trust Fund administrators to pump over $865 billion into the open market to get the best return on that investment. A conservative, long-term high growth strategy will produce major yields and secure the trust fund beyond the 2040's.
That may sound risky to some, but when you consider that all 50 states offer retirement plans for their state employees and that the majority of their investments are in the open market and are solvent, it is not that much of a risk. Not to mention the fact that the US Government could recruit the best managers in the country to invest these funds in the proper way.
It would also help if that same Congress would stop borrowing from the fund at the current rate they are and balanced the budget, but that is another discussion for another day.