One of the mantras of social security reform obstructionists is: “Don't think about rates of return. It's social insurance stupid!”
That is, SS is a big risk pooling scheme, and it's working just fine if you're sufficiently insulated against risk. Expecting a high rate of return is just a category error. You would be glad if you pay money to GEICO, say, and never get a dime back. The point was that they were there to cover you if you ever did get in an accident. And if you never do, and never see a cent, well then lucky you.
Now, the parts of the system that aren't up for reform are unemployment and disability benefits. The big controversy is over retirement. But getting old and retiring isn't a risk. Not these days. It's a near certainty. Thinking of retirement as a risk that one needs to be protected against is like thinking about sending one's kids to college as a risk. Losing your arm in a combine, and thereby losing your livelihood, is an unpredictable low probability event. It could happen to you, but probably won't. Paying your rent, sending your kids to college, or retiring are highly predictable, high probability events. You need to take responsibility and prepare for them, not be “insured” against the inevitability.
You can get a feel for the difference between the economic and demographic conditions in the early part of the 20th Century by thinking about this passage from Henry Rogers Seager's Social Insurance, among the first systematic treatises on the topic, published way back in 1910:
If the need is one the wage earner clearly forsees as certain to arise, then I should be the last person to wish to relieve him of responsibility for meeting it. If, for example, we were discussing means of helping wage earners to pay their rent, I should say that the only safe means are measures designed to increase their energy, ambition, and efficiency. Only in extreme cases should a need of this sort be met by outside help. But the future needs we are considering are not of this sort. Many wage earners go through life without being the victims of industrial accidents, without serious illness, never lacking for work, and not living long enough to become superannuated. These are all risks to which wage earners are exposed, not certain needs which they can clearly foresee.
See, in 1910 one couldn't expect to live long enough to face the problem of supporting oneself after one is no longer able to work. Nor could you in 1935. That's why the age for benefit eligibilty was set right around the age of expected death. But the whole idea of a long period of retirement is a function of massively increased lifespans. It's just no longer a “risk” that one will get old and stop working well before one dies. Retirement is now in the category of events that, as Seager puts it, “the wage earner clearly forsees as certain to arise.” And thus, the author of the ur-text of American social insurance is, “the last person to wish to relieve him of responsibility for meeting it.”
So, what? All those folks who insist on talking about retirement as a risk one needs to be insured againt are the ones committing a category error. That's what.