Social Security: Issues in Comparing Rates of Return With Market Investments Page: 4 of 75
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Social Security forms the foundation for our retirement income system,
providing crucial benefits to millions of Americans. However, the program
faces a significant long-term financing shortage, according to government
projections. In the debate about how to address this problem, some
proposals would restructure Social Security to include individual
retirement savings accounts that would either supplement or partially
replace the current program's benefits. According to proponents, such
accounts would substantially improve the rates of return individuals could
receive on their retirement contributions relative to the current system.
The proponents assert that rates of return under the current system will be
near zero and even negative for many future retirees. According to others,
however, a new system of individual accounts is not the only way to raise
average rates of return for individuals; investing some portion of the Social
Security trust funds in the stock market could also help do that. Moreover,
opponents of individual accounts assert that the rate of return concept
should not be applied to Social Security because it is a social insurance
program and should not be viewed strictly as an investment program. Still,
if rates of return are considered in weighing Social Security reforms, doing
so raises numerous issues that should be kept in careful perspective.
In recognition of the role that rate of return comparisons are playing in the
current reform debate, the Senate Special Committee on Aging and
Senator Richard Shelby asked GAO to (1) examine estimates of Social
Security's implicit rates of return for different birth years, earnings levels,
household configurations, and other demographic groupings; (2) examine
rates of return available on private market investments; and (3) discuss the
issues that arise from comparing Social Security and market investment
In the midst of the Great Depression, Social Security was enacted to help
ensure that the elderly would have adequate retirement incomes and
would not have to depend on welfare. It would provide benefits that
workers had earned to some degree because of their contributions and
those of their employers, and these benefits would be related to the
earnings on which contributions would be based. Today, less than
11 percent of the elderly have incomes below the poverty line, compared
with 35 percent in 1959; for about half of the elderly, incomes excluding
Social Security benefits are below the poverty line. However, Social
Security does not only provide benefits to retired workers. In 1939,
coverage was extended to their dependents and survivors, and, in 1956,
the Disability Insurance program was added.
GAO/HEHS-99-110 Social Security Rates of Return
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United States. General Accounting Office. Social Security: Issues in Comparing Rates of Return With Market Investments, report, August 5, 1999; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc294576/m1/4/: accessed October 18, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.