BlackRock CEO Larry Fink has proposed changes to the U.S. Social Security system. He suggests allowing Americans to invest some of their Social Security taxes into private accounts. The problem we have now is we have a plan called Social Security that doesn’t grow with the economy,” Fink said at the BlackRock retirement summit in Washington, D.C. “You’re detached from the economy, and you don’t feel like you’re winning.”
Fink argues that private investment accounts could yield higher returns by linking retirement savings to financial market gains.
These accounts would supplement, not replace, the current Social Security system. The Social Security Trust Fund currently invests its surplus funds in nonmarketable Treasury bonds. According to BlackRock, these bonds have grown by 90 percent since 2003, while the S&P 500 has risen 777 percent over the same period.
Democratic Representative John Larson said that while investing in Social Security savings could yield better returns, it would expose the program to market volatility.
Social Security investment risks and rewards
He cited the impact of the 2008 financial crisis on 401(k) plans.
Devin Carroll, owner and lead adviser at Carroll Advisory Group, pointed to a similar model already used by the federal government. The Federal Employees Retirement System (FERS) includes a “401(k)-style investment account” where employees can choose how to invest their savings. Olivia S.
Mitchell, an economist and professor at the University of Pennsylvania’s Wharton School, noted that proposals in the early 2000s to redirect a portion of payroll taxes into personal accounts “would have required some transition funding in the short term but in the long run it would have returned the system to solvency.”
However, she added that since 2010, Social Security has been spending more than it receives in payroll taxes. “If people were to invest all of their FICA taxes themselves, this would mean that current and near-retirees benefits would have to be slashed,” Mitchell said. The debate over Fink’s proposal is expected to intensify as lawmakers and the public weigh the potential risks and rewards of linking Social Security to private investments.
The new administration has not yet commented on the possibility of privatizing aspects of Social Security.
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