It's called Social "Security" for a Reason. Here's Why.

As stock market chaos routinely reminds us of the damage it inflicts on our retirement and non-retirement investment accounts, I am compelled to remind folks of that often unappreciated “trust fund” that brings (or should bring) each of us a modicum of comfort amidst the financial debris swirling around out there: Social Security.

Why Not Invest It?

The Social Security Administration funds this source of shelter from "storms," by collecting payroll taxes and using the money collected to pay "Old-Age, Survivors, and Disability Insurance" benefits by way of trust funds.

However, Social Security’s detractors persistently argue that:

• The current Social Security Administration (SSA)'s absence of stock market investment opportunities hurts employees by robbing them of a potentially higher return.

• The program would generate a greater yield if FICA tax contributions were made available for investment.

• Employees could accumulate more funds for those golden retirement years if, instead of suffering a FICA tax deduction from their paycheck, they were allowed to invest those same dollars in the bond and/or equities markets instead of “storing” it in the Social Security Trust Fund.

BUT what if the risky investments supported by those same FICA funds underperformed or failed during those working-year decades? "Tough luck buddy," would be the answer. Under the existing SSA program, eligible people qualify for and receive their annually inflation-adjusted Social Security checks throughout retirement.

SS's Core Purpose

Be mindful that the stock market’s purpose is for generating returns, whereas the Social Security program is designed to protect against losses. Here’s a sobering reminder of the need for such protection by its many recipients: Social Security income is roughly 50% of the income for roughly 50% of retirees, and Social Security provides at least 90% of income for the truly needy 18% of retirees. These folks can’t afford exposure to such market risk. And remember, that percentage increases as people grow older and deplete their retirement savings.

From an insurance perspective, Social Security is the most comforting and valuable policy most elderly people possess, but it isn’t just for seniors. Consider the program’s full name - "Old-Age, Survivors and Disability Insurance (OASID)." It's a policy that protects and provides benefits for:

• Those too disabled to work (7.7 Million people);

• Those too old to work (53 million people); and,

• Survivors benefits (about 6 million people – including 1.3 million minor children until they come of age – and spousal benefits that last until death).

  
  

In total, an estimated $120 billion in benefits were provided to these three groups last year.

Market Volatility Shield

Today’s stock and bond market volatility is an important reminder of what Social Security is designed for its benefactors to be protected from. Market risk has become even more obvious to many recently, especially given the current Administration’s constantly evolving tariff policies.

Remember, Congress can’t control the stock market, nor can it guarantee returns on investment. All it can do is ensure that those assets Americans saved for during their working lives are there in retirement when needed.