It's time to clear up some misunderstanding and misconceptions about Social Security.
Social Security was never intended to be, never has been, and probably never will be, a retirement investment program. It was established as the Old Age, Survivors, and Disability Insurance program. The official title for collecting contributions is the Federal Insurance Contributions Act. Funds not needed to support current benefits and operating expenses go into the Old Age and Survivors Insurance trust fund to be held to meet future expenses not met by the then current contributions. Supplemental Security Insurance provides benefits for the disabled and underage poor children. SS originally included, and maybe still does, payments to states to support unemployment insurance benefits.
The key operative word is "insurance." All insurance plans are based on an "in and out" funding scheme. Current insurance policy holders, whether it is for life (death) insurance, fire insurance, car insurance, liability insurance, or whatever insurance you can think of, pay into the fund to cover the losses suffered by other insurance policy holders. Excess income is stashed away to cover excessive future losses, or paid to policy holders as dividends, or paid to management as bonuses, or some combination of all three.
Social Security has always operated this way, and always will. It is financially impossible at this point to suddenly start investing contributions to pay for future retirement benefits because current benefits have to be paid somehow.
The idea of SS being a retirement program has been allowed to exist because the concept of retirement benefits is politically a whole lot more palatable than is insurance. No one hates retirement benefits. Almost everyone hates insurance, especially when it is compulsory like car insurance. Insurance is seen mostly as money gone out the window. Payments into a retirement fund are viewed as belonging to the contributor.
I'm not sure why the hue and cry about the word "benefit." Benefit is used for all kinds of payments from all kinds of financial programs. The monthly SS check IS a benefit. Many people have the wrong idea of SS benefits being "earned income." If your house burns down the money the insurance company pays you is a benefit, but it is not "earned income." You have no claim on the money without meeting the two requirements for filing a claim, namely your house burned down, and you paid for the policy. In the same vein no one has a claim on a SS retirement benefit check until they have met two conditions, one having been a contributor into the insurance pool, and two, reaching the age set by the rules whereby that person is entitled (there's that nasty word!) to file a claim.
Because of all the natural disasters of the past few years casualty insurance funds are in a squeeze. Everyone who contributed into them may not receive a payout as large as they expected, or need, to be made fully whole. If measures are not taken, the same type of squeeze will affect the Social Security funding scheme.
As long as Uncle Sam is good for its debts all the money put into the SS trust fund will be there for benefits payout. Arguably, the fund might be healthier today if the money had been invested in instruments other than G bonds. As an aside, taking all the money that comes into SS and investing it into commercial markets may not be wise. The massiveness of the funds could easily distort investment markets. The Board of the Federal Thrift Savings program, the retirement fund of Federal employees, is concerned about this issue. It's a whole lot smaller than the SS fund would be.
