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Investing the Social Security Trust Funds in Equities

This 29-page study concludes that investing the Social Security aggregate reserves in equities would have a desirable effect on the distribution of intergenerational risk-sharing, and would level the playing field between Social Security and other retirement savings programs in terms of rates of return, although it would have no net impact on economic growth if national saving remains unchanged. It would also reduce administrative costs substantially relative to a system of individual accounts. However, the study notes that there are risks associated with equity investment of the aggregate influence over corporate decisions, the possibility of reduced returns due to social investing, and a small increase in interest rates relative to returns on equities. The decision as to whether to invest the trust funds in equities rests ultimately on a political judgment that weighs the economic advantages of such an investment strategy against the political turmoil that it might create.