Deriving Social Security From the Stock Market

Mary Ann Mitchell and Mark Whitlock write that “The Stock Market Isn’t a Savior for Social Security” (Commentary, Dec. 17). They note that the market is down over the past 18 months, but that the Social Security saving program is for the long term, not the short term. From 1991 to the present, for example, the market showed an average annual return of over 13% (price appreciation plus dividend yield). Even for the 1970-85 period, which the authors cite as one for which stocks were one of the worst possible investments, the annual returns exceeded 10% versus 7% on U.S. savings bonds.

In reform of the Social Security program, workers should be given the option of keeping the present program for themselves or selecting a diversified portfolio of assets, including U.S. bonds and stock mutual funds that mirror the S&P; 500 common stock index. If the latter were chosen, the average worker, during the ages of 20 to 67, could accumulate about $600,000 in savings, with 2% of his or her income going into the fund. This assumes that the next half-century of growth will be about the same as the past half-century. This, I believe, is a reasonable expectation.

Theodore A. Andersen

Professor of Finance

The Anderson School, UCLA