[Problems prevented me from posting for a while. So, I'm trying to catch up.]
According to the annual report of the Social Security Trustees, after adding the income for the 2012 budget year and subtracting the year's expenses, the Social Security Administration (SSA) trust funds held about $2.8 trillion dollars in reserves. Between now and 2020, the amount of reserves is expected to increase a little. That's a lot of money and could be put to a lot of uses. Currently, the SSA is required to invest its reserves in securities fully backed by the US government and currently those funds are in US Treasury Bonds. Last year, SSA made interest income of $122.6 billion on that. That's about 4.4% - certainly a lot better than a bank would pay you for a savings account. Of course, you don't have trillions in your savings account, and bonds aren't the same as savings accounts.
The question we need to ask about these reserve funds is: What is the most effective use of them for the long-term financial welfare of the funds and Social Security recipients? Between now and when the reserves peak, Treasury Bonds can provide a significant, dependable source of investment income. But if we leave everything as it is, retiring baby-boomers will cause SSA to start spending part of its reserves after 2020. As parts of the reserves are spent, there will be less reserves to earn interest, so that source of income will decline. During the 2030's that interest income could disappear.
Is there a more promising use of the reserves? I'm not an expert here. I'd like to present a group of alternatives which is generally ignored because it is opposed by the business community. It's not my intention to claim that all these alternatives would provide better results, but they should be seriously considered, and accepted or rejected based on what it can do for SSA's trust funds - not whether it makes Wall Street happy.
Any business faced with large surpluses in the present but looming expenses in the future would look to see how they could use today's bounty to make part of tomorrow's expenses disappear. For instance, a manufacturer that currently buys parts from another company might use their extra money to build a facility to manufacture those parts, so they could cut their long-term costs for those parts.
Social Security can actually be seen as being in a comparable position today. Medicare and Medicaid spend billions on medicines, medical equipment, lab tests, etc. Medicare has actually lost billions of dollars a year to fraudulent "medical supplies distributors" that submit claims saying they provided medical items to Medicare patients. If Medicare were to have its own medical supply distribution system, it might cut what it now pays to legitimate private distributors and would clearly save money on fraudulent ones. Perhaps, it would be better off financially manufacturing some of the drugs and/or equipment for Medicare patients. Perhaps, it would benefit from owning some nursing homes used by Medicare patients. Perhaps, by owning medical office buildings and renting to doctors, it could end up ahead of the game. Perhaps, by owning medical laboratories, physical therapy practices and such Medicare could save money - if in no other way by reducing over-billing. Perhaps, by owning senior housing complexes, seniors would return part of their Social Security benefits to SSA in the form of rent. There are many possibilities. They don't all have to work.
If we can find any area where prices charged by private companies are high because there isn't meaningful competition, Social Security may be able to enter the market and make it necessary for companies to charge more reasonable prices or let Social Security take over their market share. Once a precedent is set, companies that sell to SSA may keep prices more reasonable because they know what the alternative is.
Even if these approaches did not have as good a return on investment during the short-term while the reserves are huge, they might pay in the long run after the reserves are smaller.
(It would have been better for SSA to have considered this years ago, but so far Wall Street has gotten its way.)
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Business people and their politicians are likely to claim the federal government and Social Security are not permitted by law / Constitution to maintain business-like operations. However, the federal government does and has done so for a long time. These business-like activities include:
> The US Postal Service
> The Federal Reserve lending money to big business
> The US Mint selling commemorative coins
> Selling mineral rights on federal lands
> Social Security and Medicare takes a potential market from corporations
> Federal Deposit Insurance for banks
> The federal government is involved in flood insurance
> Some operations such as air traffic control could be done by private companies (although it's good that it isn't)