The reason why you should use stock market rates of return is that even back when I started working, before the 401(k) was invented, every financial advisor I read said that long term savings should be invested in stocks. And, I read dozens of financial advisors' writings.
This was especially true for younger workers, since their money had longer to grow and compound.
Even way back then large employers had retirement plans and the money in these plans was most commonly invested in stocks.
Essentially, I see no reason at all to accept a lower rate of return than that achieved by professional money managers, especially on what should have been the largest pot of retirement money in the world. If a private employer accepted a 5% return on their pension plan they would have failed in their fiduciary responsibility to the plan participants and would have been sued. In fact, I have read about examples of this, but do not have a reference.
You can have any opinion you want, by my contention is that the funds stolen from me by Social Security should have received no lower a rate of return than the average of either the stock market, or the average of large company pension plans, both of which are in the 12% to 14% range.
This is not 20/20 hindsight or pie in the sky, but real results achieved by real pension plans.
I have no argument with either investing in equities or in mutual funds, as I have done so myself for decades, and I too would be very dissatisfied with a long term return of 5%.
I am certain, however that many highly secure investment funds do in fact only offer a return of a few percent, and as long as they don’t misrepresent the expected return, they won’t be successfully sued, at least not on that account.
While such investments might not satisfy either your requirements or mine, they certainly do have clients. And I would suggest to you that viewed as an investment, social security is more like one of these highly secure investment offering a very low rate of return than it is like an equity investment.
You may well argue that you would not have so invested had your money not been taken from you under color of law. I’d agree with you; mine would not have been so invested either - and what I did keep and invest was not.
But I think it is a bit unfair to use a 12 to 14 percent rate of return to judge social security’s return.
Let me do a bit more math, and I will come back to you with the actual rate of return that I am getting from Social Security. I think you may be surprised. Or then, it may be me.