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.
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.
Typically, the only people who invest in these highly secure funds, are financially naive and have low incomes/small amounts to invest. The rich do better, and mitigate risk through diversification. You are missing two important points about investments which offer a low percentage return. They usually offer liquidity and a guarantee against nominal (not inflation-adjusted) loss.
SS offers neither. Courts have ruled that the government has no obligation at all to make any future SS payment, so there is no guarantee against capital loss, and SS is a very non-liquid "investment". I "invest" at age 18 and can not usually get any return until age 62.
Now, some of the insurance features of SS slightly mitigate these drawbacks, but if you do a reasonable analysis you will discover that this is very, very expensive insurance.
SS is touted as a program for the common man, a protector of the "little guy". The truth is that SS is handing out a worse financial drubbing than the sleaziest salesman of high-load mutual funds and annuities. If any company or individual operated a retirement vehicle like SS they would be prosecuted for fraud and imprisoned.