A high-profile proposal to borrow $1.5 trillion and invest the money in stocks to salvage Social Security’s finances would likely leave taxpayers saddled with enormous debt, even under optimistic market conditions, according to a new analysis from the Center for Retirement Research at Boston College.
The brief is critical of a plan championed by Sens. Bill Cassidy (R-La.) and Tim Kaine (D-Va.), who have sought middle ground between raising taxes and cutting benefits.
The Social Security trust fund is projected to run dry by 2034, after which incoming payroll taxes can cover only about 80% of scheduled benefits.
Cassidy’s and Kaine’s proposal would borrow a total of $26.6 trillion over 75 years, while $1.5 trillion would seed a separate investment fund placed into equities and other risky assets.
The rest would cover annual benefit gaps. After 75 years, investment proceeds would repay the Department of the Treasury, with leftover gains helping to offset the total tab borrowed, according to the plan.
But a simulation of 10,000 possible market scenarios, detailed in the brief, found that even assuming a robust 6.5% real annual return on stocks — matching historic highs — the investment fund would fully cover the amount borrowed roughly 64% of the time.
Under a more modest 4% real return forecast by many financial firms, the fund would reportedly offset just 19% of the $26.6 trillion at the median outcome.
Room for reverse?
A potential shortfall in Social Security benefits could also drive older homeowners toward reverse mortgages.
If trust fund insolvency forces across-the-board benefit cuts, and if annual cost-of-living adjustments continue to lag real inflation experienced by seniors — particularly for health care and housing — millions may find their monthly income falling well short of basic expenses.
Reverse mortgages could become an essential lifeline. Demand for these loans may accelerate sharply as retirees seek to replace lost or eroded Social Security income.
Equity investment needs paired with other fixes
The researchers do not rule out a role for stocks.
“Alternatively, equity investments could help Social Security’s finances if paired with a tax increase or benefit cut that restores solvency,” the brief explained.
In simulations where lawmakers immediately raise payroll taxes enough to close the 75-year shortfall — a 3.82% increase under current law — and then invest up to 40% of trust fund assets in equities, the outcome shifts dramatically.
At the median projection with 6.5% real returns, the trust fund would hold assets equal to 10.1 times annual outlays in 75 years, compared with just 0.7 times if left entirely in special-issue Treasury bonds.
Even with lower 4% returns, the ratio stabilizes around 4, enough to pay full benefits indefinitely without further cuts or tax hikes.
“But the window of opportunity is closing; waiting until 2034 to introduce equities would be too late to offer a permanent fix,” the brief warns.
Under a delayed 2034 start — requiring a 4.53% tax increase — median trust fund ratios fall to 3.4 with 6.5% returns, and below sustainable levels with 4% returns. In the latter scenario, the fund would not remain solvent indefinitely even at the 50th percentile of outcomes.
“If equity investment is to play any constructive role in Social Security reform, it must be considered early, alongside a comprehensive solvency package that restores balance between revenues and benefits and rebuilds reserves,” the authors concluded.
The analysis assumes equity allocations phased in over 15 years and capped at 40% of trust fund assets to limit market distortion — a level that would still leave the government owning less than 7% of the U.S. stock market today.
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