Social Security Trust Fund Underperformed Inflation in 2023 — How Much It Could Have Gained Invested Differently
Written by
Vance Cariaga
Edited by
Daria Uhlig
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Social Security beneficiaries mostly stayed ahead of inflation in 2023 thanks to last year’s 8.7% cost-of-living adjustment (COLA). But the program’s Old-Age and Survivors Insurance Trust Fund and Disability Insurance Trust Fund didn’t fare nearly as well, at least according to a recent analysis from MarketWatch.
That analysis found that the Social Security trust funds underperformed the official inflation rate in 2023 — even during a year when inflation fell sharply and stocks and bonds both posted strong gains. The result was that the trust funds “managed to lose money on the markets in real, purchasing-power terms,” MarketWatch’s Brett Arends wrote.
“If Congress had chosen to invest that money in an index fund tracking the S&P 500 index SPX of large-company U.S. stocks, our money would have earned us 25% [in 2023],” he added. “That would have been an extra $700 billion toward Americans’ pensions. If Congress had been more cautious, and invested 60% of it in U.S. stocks and 40% in U.S. bonds, we’d have earned just under 18%. That would have been worth $500 billion … If Congress had simply chosen to invest 60% in a worldwide index of stocks and 40% in a worldwide index of bonds, it would have earned 16.4%, or about $460 billion.”
Instead, Congress chose to keep the fund entirely invested in “low-earning” Treasury bonds, which logged returns of less than 2.4% in 2023, according to a report from Social Security Administration trustees. That slight gain — roughly $70 billion — followed a loss of money the previous year.
According to the SSA, Social Security’s Old-Age, Survivors, and Disability Insurance trust funds had about $2.83 trillion in asset reserves at the end of 2022. That was down from $2.85 billion at the end of 2021. Adding an additional $500 billion to $700 billion in 2023 through better investments would have gone a long way toward bolstering funds that are heading toward insolvency.
Social Security’s Old Age and Survivors Insurance Trust Fund is expected to run out of money in about a decade, leaving Social Security solely dependent on payroll taxes for retirement funding. Those taxes currently cover about 77% of benefits.
It doesn’t help that Social Security “underperforms any normal pension-fund portfolio in almost every year,” according to MarketWatch. Over the last decade, a portfolio of 60% U.S. stocks and 40% U.S. bonds earned an average of 9.6% a year. In contrast, Social Security trust funds have gained only 2.6%.
One reason Congress puts Social Security money into bonds is that bonds are considered a much safer investment than stocks — and lawmakers don’t want to put Social Security benefits at risk. Congress is unlikely to change its policy any time soon, which means the Social Security trust fund will probably keep underperforming the market — and potentially inflation — for the foreseeable future.
“Congress has repeatedly refused to change the law to allow Social Security to invest like every other pension fund in America (or around the world),” Arends wrote. “Instead the fund is required to invest only in Treasury bonds.”
More From GOBankingRates
