A New Proposal Lawmakers Are Pushing Could Shake Up Social Security as We Know It

The clock on Social Security keeps moving. The program's retirement trust fund is projected to run short in late 2032, and without action from Congress, ongoing tax revenue would cover only about 78% of scheduled benefits. That works out to a 22% cut for everyone collecting at that point.

Two senators have proposed an unusual response. Their plan would borrow $1.5 trillion, invest it in the stock market for 75 years, and use the returns to help fund senior benefits. The idea is bipartisan, and the details are worth knowing as lawmakers look for ways to avoid a benefit shortfall.

What the proposal would actually do

The plan comes from Senators Bill Cassidy (R-LA) and Tim Kaine (D-VA). It would create a new investment fund separate from the existing Social Security trust funds, financed entirely by borrowing.

The federal government would borrow about $1.5 trillion over several years and invest the money in a diversified portfolio of stocks and other assets. The goal is to give that money decades to grow rather than relying only on payroll tax revenue to support future benefits.

Under the proposal, Social Security would continue paying full benefits even after the current trust fund is projected to run short in 2032. The Treasury would cover those payments through additional borrowing while the investment fund remains in place.

After 75 years, the assets in the fund would be sold. The proceeds would first be used to repay the borrowing tied to the plan, and any remaining funds would help support Social Security going forward.

Current retirees would not see any immediate changes to their benefits. The idea is designed to maintain full payments without raising taxes or cutting benefits today, while relying on long-term investment returns to help cover part of the cost in the future.

The case for the plan

Supporters of the proposal believe the stock market could generate higher long-term returns than the government bonds currently held by Social Security. Since 1983, the S&P 500 has outperformed those bonds by about 4.4 percentage points per year on average.

Cassidy and Kaine estimate that $1.5 trillion invested over 75 years could grow to roughly $30.6 trillion. Under their calculations, that would be enough to cover the estimated $26.6 trillion in borrowing tied to the plan and still leave additional funds to support Social Security.

Backers of the proposal also point to other retirement systems that already invest in stocks. The National Railroad Retirement Investment Trust has used a similar approach since 2001, while Canada's pension system and many state pension funds also invest part of their assets in equities.

Unlike many Social Security proposals, this one does not rely on benefit reductions or higher payroll taxes to improve the program's finances.

Why analysts are skeptical

Many analysts agree that the proposal could work if investment returns are strong enough. The challenge is that the outcome depends heavily on decades of future market performance.

Research from Boston College's Center for Retirement Research found that the plan's investment fund fully covered its borrowing costs in only 36% of simulations, even when using the proposal's assumed 6.5% annual real return. In most scenarios, future taxpayers or future retirees would still be left to cover part of the shortfall.

The amount of borrowing involved has also drawn attention. The proposal would add an estimated $26.6 trillion in present-value borrowing over 75 years. Some economists argue that carrying more federal debt could put upward pressure on interest rates, which could slow economic growth and make the investment returns needed for the plan harder to achieve.

Critics also question whether the proposal addresses Social Security's underlying funding problem. Their concern is that borrowing money to invest in stocks changes how the program is financed without fully resolving the gap between the revenue coming in and the benefits promised over time.

What this means for retirees and near-retirees

The plan's most direct promise is to current retirees and people approaching retirement. If it passes, none of those households would see benefit cuts in 2032, even though the trust fund would still run out on schedule.

Questions about the plan tend to focus on what happens over the decades that follow. The proposal relies on long-term investment returns and future political support, both of which are difficult to predict far in advance.

That leaves retirees in a somewhat different position than younger workers. The potential benefits are intended to arrive quickly, while much of the financial risk would play out many years from now.

Bottom line

The Cassidy-Kaine proposal offers a very different answer to a problem that has been hanging over Social Security for years. Instead of asking workers to pay more or retirees to accept less, it looks to long-term investment returns to help close the gap.

Whether lawmakers ultimately embrace that idea or move in another direction, the debate itself is worth paying attention to. The choices Congress makes in the years ahead could help determine how much future retirees receive from Social Security and how practical living on just Social Security will be for future generations.