With the November midterm elections fast approaching, Social Security reform should be a priority for both parties.
On its current trajectory, theto run a $2.4 trillion deficit over the next decade and exhaust its reserves by 2034. With a waning worker-to-employee ratio, commonly proposed solutions like increasing funding or cutting benefits do little more than kick the can down the road. Instead, congressional leaders should be looking to enact lasting reforms. For an example of what those reforms might look like, they should consider the remarkable success of my home country, New Zealand.
In 2001, the New Zealand government established universal retirement pensions, paid for by a taxpayer-funded. Now, after over two decades of prudent investing, it generates enough money to fund generous pensions with negligible ongoing contributions. As a result, Kiwis enjoy incredibly high financial security in retirement at a small fraction of the price that Americans pay.
Though New Zealand’s pension plan looks similar to U.S. Social Security at first glance, a few key differences have allowed New Zealand’s pension fund to flourish as U.S. Social Security reserves bleed dry. For one, New Zealand's fund is run like an actively managed portfolio, helping it generate significantly higher results. In addition, oversight is conducted by an independent board as opposed to elected officials, minimizing the impact of political influences.
Unlike the Social Security Administration, the superannuation fund operates as a taxpaying corporation overseen by an independent board and invests across a diversified range of private and government securities. New Zealand's fund has the freedom to invest in global securities, private equity, and venture capital. In contrast, the Social Security trust fund is legally required to invest exclusively in securities with federally guaranteed principal and interest.
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