See elsewhere for my calculations showing that if my SSA deductions had been invested in Dow Jones or S&P 500 indexed mutual funds and withdrawn 5% a year, I would have had 3 or 5 times as much payout on retirement as SSA, and in most years, the 5% withdrawal would still leave 3-6% above inflation to grow the capital. I also ran this for every year starting in 1926 when the S&P 500 was created. The worst starting year would have ended with 96% of the SSA payout, and the best would have been 7 times as much. Most were in that 3-5 times range.
But there could be a better way. Since 2000, CalPERS achieved a 23-year average return of 5.6%. Meanwhile, the Public Employees' Retirement System of Nevada, a $58 billion fund, earned a 6.9% return during that time — while taking on less risk than CalPERS. Nevada PERS achieved such returns with just three employees managing the fund, limiting costs, and increasing long-term returns by investing almost exclusively in publicly traded index funds.
The plan is to have a transition tax generating at least $5T in revenue. This would pay the $3T welfare obligations, $1T in interest, and $1T in unexpected miscellaneous obligations and some surplus to buy out pensioners and pay down the national debt (because I don't know enough about Treasurys to know how much paying interest knocks down the debt itself).
Suppose you auction off pension lump sums. Looking back at the data I downloaded, the Dow Jones yield 2013-2022 was 10.4%, and the S&P 500 yield was 13.7%; call it 10%. NASDAQ was 17.6% but it's too new to cover my entire working life. That $1T in miscellaneous spending, if fully invested in those mutual fund indexes, would pay $100B a year, which is 1/30 of the annual payout. How much would a pensioner getting $2000/month, $24,000/year, bid to have control of his own lump sum paying that much, which is also inheritable and spendable? Some would fancy themselves stock market wizards and bid less, say $200,000, but suppose the average would accept $250,000, just to be safe. The second year, the welfare payout would be $100B less, not much, but buy out $1.1T in pensions, and the third year would be down $210B.
Some people prefer Certificates of Deposit instead of anything related to the stock markets. A quick Google search shows this is a lousy choice; yields from 1990 to 2025 have only barely squeaked above 5% for about 10 years, and have been below 2% about as often. This is 1/2 to 1/3 of the stock markets in the best of times, and more like 1/10 in the worst of times. Why anyone would prefer this, I do not know; if the stock market ever crashed enough to make those rates look good, those rates would not be on offer.
Some people would have no interest in being bought out, not trusting stocks or themselves. But pensioners would begin dying out, and the tax would dwindle to nothing in 7 years and begin turning into an ultimate 11.3% raise. The businesses handling the legacy transition could at some point have enough mutual funds principle to not need the tax any more.
This $1T has to be split between pension lump sums and paying down the national debt. I do not know the optimal mix.
Google says US dollar investments in mutual funds in 2020 were $24T. Dumping even $1T a year into them would not be disruptive.
Updated 2025-01-13 with updated guesstimates.