Social Security and Sovereign Wealth Funds

Now that Retirement Planning for the Utterly Confused is widely available and I have completed the footnotes and explained the references that I made throughout the book – something my wife refers to as a “mindbreak from the complexities”, it is time to offer some insights into the world of retirement and associated issues.



Recently, on the Nightly Business Report, a PBS mainstay for almost thirty years, Allan Sloan, Sr. Editor at Large for Fortune offered his comments on fixing the future under funding of Social Security.

He suggested that the United States should “set up a sovereign wealth fund to invest Social Security's cash surpluses. That way, when Social Security takes in less cash than it spends about 10 years from now, we'll have a way to cover the shortfall. Sovereign wealth funds,” he goes on to explain, “are owned by countries, are a very big deal these days as I'm sure you know. They've put about $50 billion into big Wall Street firms that needed capital. They own maybe $3 trillion worth of various stuff but our country doesn't have one.”

To clarify what a sovereign wealth fund is, according to Simon Johnson of the International Monetary Fund, a way for countries running a surplus to invest that money. Surpluses are, in case you have forgotten from the days when our country also had one, is extra cash that the country does not need for immediate purposes.



There are about twenty sovereign funds in existence now, investing about $3 trillion dollars. Alaska and Canada have one, investing oil money for the future of their citizens. Russia, China and numerous Asia-Pacific nations use money they do not need to invest in places needing a cash infusion. Lately, that has been us.

Mr. Johnson says not to worry though, the amount of money being used in these funds is only a small portion of the global value of trade securities.

Mr. Sloan continues, “So Social Security's cash surplus -- about $90 billion this year -- goes into Treasury securities. Its trust fund owns more than $2 trillion of them, but they're not wealth. Because when Social Security takes in less cash that it spends, the funds won't make it any easier for the government to cover the checks than if there were no fund.”

A sovereign wealth fund could do so much more by purchasing, “high-rated corporate bonds, home mortgages of credit-worthy borrowers or anything solid” meaning anything carrying a high credit rating that could generate significant interest wealth over the long-term.

“Then,” he continues, “when Social Security needs cash, the fund would have real wealth. Now, I don't think for a minute that anyone in Washington has the nerve to do this, because it would involve admitting the trust fund is useless. So, we'll keep doing what were doing. Instead of building a Social Security sovereign wealth fund, we're running an impoverishment fund and our children and grandchildren will get to pay for it.”