Social Security Reform Could Help Workers Build Long-Term Retirement Wealth

The stock market has generated substantial wealth for American investors over the past four decades, yet millions of workers have had little opportunity to benefit from those gains through their retirement savings. Social Security requires workers to contribute a portion of every paycheck to a government-run retirement system without giving them the option to invest those taxes in personally owned retirement accounts.

Allowing workers to invest a portion of their Social Security contributions could create new opportunities to accumulate retirement wealth, particularly for lower-income Americans who often lack the resources to invest outside the program.

A recent analysis from the Committee to Unleash Prosperity underscores the potential benefits of long-term investing. Over the past four decades, the Dow Jones Industrial Average and S&P 500 have recorded positive annual returns more than 75 percent of the time. The findings offer a useful starting point for reconsidering how Social Security could help workers build financial security over their careers.

Four Decades of Stock Market Growth

The Committee to Unleash Prosperity's review of annual stock market performance illustrates the gains available to long-term investors. Between 1988 and 2026, the Dow Jones Industrial Average recorded numerous years of double-digit growth, including a 33.6 percent increase in 1995, its strongest annual performance during the period examined.

The market experienced substantial downturns during that period, including a 33.8 percent decline in 2008 during the financial crisis. Investors who remained invested through those losses, however, benefited from subsequent market recoveries.

Although annual returns vary considerably, the long-term record demonstrates how sustained participation in financial markets can help investors accumulate wealth. Regular contributions over several decades allow retirement savers to benefit from compounding returns, with investment earnings generating additional earnings over time.

For workers who begin investing early in their careers, even modest contributions can accumulate into meaningful retirement assets. The challenge is ensuring that more Americans have access to those opportunities.

Social Security Limits Workers' Ability to Accumulate Assets

Under the current Social Security system, employees pay 6.2 percent of their wages in Social Security payroll taxes, while employers contribute another 6.2 percent. These revenues primarily finance benefits for current retirees rather than accumulating in individual investment accounts.

Workers earn future retirement benefits based on their earnings histories, but their payroll tax contributions do not create personally owned financial assets that can grow through market investments.

This structure is particularly consequential for lower-income workers. Americans with limited disposable income often have fewer opportunities to contribute to workplace retirement plans, individual retirement accounts, or other investments. As a result, Social Security may represent their primary source of retirement income without providing a corresponding opportunity to accumulate investment wealth.

Permitting workers to invest a portion of their payroll taxes in personal retirement accounts could broaden access to financial markets and allow more Americans to benefit from long-term economic growth.

Such accounts could provide workers with assets accumulated over their careers, rather than leaving their retirement income dependent almost entirely on future government benefits.

Personal Retirement Accounts Could Offer Growth and Diversification

Expanding investment opportunities within Social Security would not require workers to place their retirement savings entirely in the stock market.

One approach would allow workers to invest through diversified index funds containing both stocks and bonds. A portfolio divided equally between stock and bond funds, for example, could provide exposure to long-term market growth while moderating some of the volatility associated with equity investments.

Low-cost index funds would offer a relatively straightforward investment structure without requiring workers to select individual stocks or actively manage complicated portfolios.

Investment returns would remain subject to market conditions, and diversification would not eliminate the possibility of losses. Workers approaching retirement would face different financial risks than younger workers with decades remaining to recover from downturns.

A carefully designed system could account for those differences through diversified investment options, appropriate safeguards, and rules governing withdrawals during retirement.

The broader objective would be to give workers greater control over a portion of their retirement savings while expanding opportunities to accumulate financial assets.

Social Security's Financial Problems Require Broader Reform

The case for personal retirement accounts comes as Social Security faces growing financial pressure.

The 2026 Social Security Trustees Report projects that the Old-Age and Survivors Insurance Trust Fund will exhaust its reserves in 2032. At that point, continuing payroll tax revenues would be sufficient to pay approximately 78 percent of scheduled retirement and survivor benefits unless Congress changes the law.

These projections underscore the need for reforms that address the program's long-term financial obligations.

Allowing workers to redirect some payroll taxes into personal retirement accounts would introduce an additional financing challenge because existing contributions are needed to pay current beneficiaries. Any transition would require a plan to honor those obligations while allowing younger workers to accumulate their own retirement assets.

Personal accounts would therefore need to be considered as part of broader Social Security reform rather than a substitute for addressing the program's financial imbalance.

Policymakers would need to establish a workable transition, preserve appropriate protections for vulnerable beneficiaries, and ensure that retirement savings arrangements remain affordable and accessible.

CFE Takeaway

Decades of stock market growth demonstrate the opportunities that long-term investing can provide, but Social Security's current structure prevents workers from investing their payroll tax contributions in personally owned retirement accounts.

Giving workers the option to invest a portion of those contributions in diversified, low-cost funds could expand retirement wealth-building opportunities, particularly for lower-income Americans who have limited access to other savings vehicles.

Social Security's financial challenges make comprehensive reform increasingly important. Congress should examine how personal retirement accounts could fit within a sustainable retirement system that protects existing obligations while giving future retirees greater opportunities to build financial assets over their working lives.