There’s been no shortage of debate over how to shore up Social Security as it barrels toward a funding shortfall in 2035. Now, BlackRock CEO Larry Fink is weighing in with a somewhat controversial idea: partial privatization.
Speaking with Semafor’s Liz Hoffman, Fink suggested the problem with the nation’s safety net is that it’s restricted to ultra-safe but low-growth assets.
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“We have a plan called Social Security that doesn’t grow with the economy,” Fink shared with Hoffman at BlackRock’s retirement summit. “You’re detached from the economy, and you don’t feel like you’re winning.”
To remedy this, Fink proposes reforming the system so that Americans can deploy part of their Social Security funds into the private capital market.
Fink touts better performance
Social Security is America’s largest public pension system. This year, the Social Security Administration (SSA) expects to pay out $1.6 trillion in benefits to roughly 69 million elderly and disabled citizens.
The system’s trust funds, overseen by the U.S. Treasury, are required to invest the SSA’s reserves in interest-earning securities that are backed by the federal government — mainly special Treasury bonds.
However, the S&P U.S. Treasury Bond Index has delivered an annualized return of just 1.07% over the past ten years, while the S&P 500 has produced an annualized return of 10.58% over the same period.
Fink’s proposed reform would bring the system in line with other global pension funds. Australia’s Superannuation system, for example, offers tax-payers a range of options for how their funds are invested — from a balanced, low-risk approach to a more aggressive, high-growth approach. Most options have a diversified mix of cash, real estate, stocks, bonds, infrastructure, private credit and private equity.
Similarly, the Canada Pension Plan (CPP) invests in a broad mix of assets such as public and private equities, credit, bonds, infrastructure, real estate and other asset classes across the world. Over the past 10 years, the CPP has realized a net annual return of 9.2%.
Fink believes that replicating these pension funds could benefit the Social Security system.
“The beauty of that plan, unlike Social Security — and I know we can’t talk about Social Security in this country — is that you’re investing in real assets,” said Fink. “You’re growing with your country.”
However, Fink’s proposal doesn’t appear to be anywhere on the Trump administration’s radar.
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Cutting costs rather than boosting performance
President Trump’s nominee to oversee the SSA, Frank Bisignano, recently dismissed rumors about potentially privatizing the system.
“I’ve never thought about privatizing,” Bisignano said during his confirmation hearing. “It’s not a word that anybody’s ever talked to me about.”
Instead, the Trump administration has focused largely on slashing operational costs at the SSA. Elon Musk’s Department of Government Efficiency (DOGE) appears to be focused on large workforce cuts, office closures and service reductions, as well as Musk’s claims of alleged fraud among SSA recipients.
The SSA has already laid off 7,000 employees, with reported plans to fire thousands more, and aggressive cuts to staff and services have potential to create disruptions to payments for many American seniors. Meanwhile, fraud accounts for just 0.00625% of the SSA’s annual budget, according to the nonpartisan Brookings Institute.
It should also be noted that the SSA’s total operational budget for fiscal 2024 was just under $14.23 billion, which is just 0.88% of the agency’s $1.6 trillion payout. In other words, even if the Trump administration were to lay off all SSA employees and shut down all support offices, the cuts would still have a negligible impact on the SSA’s funding shortfall.
Since privatization doesn’t appear to be in the Trump administration’s plans, and layoffs seem to be ineffective, the American Association of Retired Persons (AARP) believes the White House and Congress have only a few unattractive options for salvaging the SSA’s trust fund in the next seven years: raising taxes, cutting benefits or allocating other government revenue for the program.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
