This question is often referred to as the "money's-worth" question. It can be very difficult to answer and there are a number of different ways to make the measurement. The method you seem to be referring to is called the "payback" method. We will take our response from a study produced by the Library of Congress' Congressional research Service (95-149 EPW, update June 2, 1997). To quote from their report: "Under the most commonly used economic assumptions, workers who have always earned an average wage retiring at age 65 in 1997 will recover the value of the retirement portion of their and their employer's Old-Age and Survivors Insurance taxes plus interest in 13.9 years."

This figure is expected to grow longer in the future. For example, by 2025, CRS estimates the payback period would be 26.2 years. This increase will be ameliorated somewhat by the increased life expectancies of future generations.

To quote further from the report: "Some commentators point to [the increasing length of the payback period] as evidence of problems and inequities in the program. Defenders of Social Security tend to discount this phenomenon, arguing that the program serves social ends that outweigh calculations of individual profit or loss. They say that the program should not be viewed as an annuity, but as 'social insurance' that provides fundamental financial protection to the Nation's workers and their families."

20.2 What we get back from Social Securit y- when you say it is 8 years - does that include interest?

This question refers to one calculation of the "money's-worth" question. This is the "payback" measure which tries to determine how long a given retiree must receive benefits to be "paid back" all of the contributions he or she has made over the years. It can be very difficult to calculate as there are many possible variables. To give you some examples, with respect to determining the amount of contributions, do you want to include both the employee and the employer contributions, are you including the contribution for survivor's benefits or just retirement, are you including interest on the contributions and what interest rate do you use. On the benefit side, do you include future benefit increases, expected cost-of-living adjustments, and the fact that benefits could be taxable in some cases. The example you have given of 8 years appears to refer to the payback period for a worker retiring in 1997 at age 65 who always earned an average wage, and the contributions measured are from both the employer and employee and are just for the retirement benefit. This calculation, determined by the Library of Congress' Congressional research Service (95-149 EPW, update June 2, 1997) does include interest equivalent to that earned, or expected to be earned, on a portfolio of long-term U.S. government bonds.

20.3 There has been a surplus in Social Security since 1983. This has been put into U.S. Treasury Bonds. What is the total value of those bonds today? What would the projected value be if those same funds had been invested in the stock market?

$656 billion at the end of 1997. The stock market comparison cannot be made without some specification as to the types of stocks. The average rate of return on the government securities for 1997 was 7.5%.

20.4 Is the current money available for investment by the trust funds treated like an investment, or is it a dollar in and a dollar out?

Social Security contributions not needed to pay benefits are invested by the trust funds in government securities backed by the full faith and credit of the U.S. Government. The government credits interest payments to the trust funds, and this, if not needed to pay benefits, is also invested.

20.5 What interest rate does Social Security earn on our money?

According to the 1998 Trustees Report, the effective annual rate of interest earned by the assets of the Social Security retirement and disability funds during 1997 was 7.5%

20.6 Is it possible to establish the Social Security Trust Funds so that the payment to Social Security recipients would come out of the interest earned on the money in the Trust Funds and not eat into the Funds themselves?

Interest earnings on the invested assets of the retirement and disability funds were $43.8 billion in 1997. Since these earnings, along with payroll taxes, were not needed to pay benefits, such amount was, in essence, reinvested in government securities. Beginning in 2021, Social Security will begin to use assets in addition to contributions and interest to pay benefits.

20.7 If the surplus in Social Security had been invested in the stock market, would the return have been higher than that of government securities?

If the Social Security surplus had been invested in the stock market over the past ten years or so, the rate of return would have been higher, given the performance of the stock market over that period of time. Government securities have been viewed as a safer, more conservative investment strategy. Investment in private markets carries more risk with it.

20.8 What is the current earnings rate for the Social Security trust funds from government securities? Historical rates of return?

In 1997, the average rate of return on total assets of the trust funds was 7.5%. In the past, some securities held by the trust funds had a rate as high as 13.5%.

20.9 Compared to the interest earned by the trust funds and projected in the future cost estimates, what return is needed to solve the funding problem? Could, realistically, an increase in earnings alone fix the problem?

It is unlikely that any possible rate of return could solve all of the funding problems, even though it might solve a significant part of the problems, especially if other changes were made which would build up a large fund balance.

20.10 Where is the Social Security money currently invested?

The Social Security trust funds are invested in Government bonds which have a fixed maturity date with consideration to funds needed to pay benefits.