The idea of privatizing Social Security is nothing new. Some 20 years ago, President George W. Bush proposed allowing younger workers to put a portion of their payroll taxes into personal retirement accounts.
That plan didn’t gain traction, but some warn that a recent shake-up at the Social Security Administration — including a reduction in staffing — could be a precursor to an attempt to privatize the system.
While there are no plans to do that just yet, retirement experts say privatizing Social Security has the potential to both help and hurt retirees. But transitioning to a new system would be a complex process, and some people don’t think the current administration is up to the challenge.
[READ: How Raising the Retirement Age Could Help or Hurt Seniors]
What Privatizing Social Security Means
At its most basic level, privatizing Social Security involves transferring the administration of the program to private entities.
“It means taking the money out of … the government, where it is safe and secure, and essentially putting it into some form of the stock market,” says Adam E. Block, an associate professor of public health at New York Medical College and founder of the consulting firm Charm Economics.
He likens it to Medicare Advantage, which allows people to receive their Medicare health benefits from a private insurance company rather than directly from the government.
“I think the appeal is that people believe government is very complicated and there is a lot of red tape involved,” says George Carrillo, co-founder and CEO of the Hispanic Construction Council. He says people aren’t wrong about that, and the Social Security system is complex. However, that complexity ensures there are safeguards in place, and those might be lost during privatization.
[READ: Trump Proposed Eliminating Social Security Taxes. Here’s the Bill That Could Make It Happen]
How Privatization Could Happen
The logistics of transitioning from the current Social Security system to a privatized one remain a point of discussion.
“You would roll it out slowly over time and have people opt in,” Block suggests. He adds that perhaps the privatized system would never become mandatory, or workers may be allowed to split their payroll taxes between the current Social Security system and a privatized one.
“In my mind, it would operate a lot like a 401(k),” says Chuck Czajka, founder of Macro Money Concepts in Stuart, Florida. However, he thinks it would be better to invest in a guaranteed insurance plan, such as an annuity, rather than the stock market. “Social Security is really a protection plan,” he notes, which is the function of insurance as well.
The Bush plan from 2005 called for allowing workers to divert a third of their payroll taxes — up to $1,000 — into a privatized account where they could choose from five index fund investments. However, a report from the Center for American Progress at the time said those were more general ideas than a specific plan for privatizing Social Security.
“It keeps coming out of the woodwork now and then, and no one has presented a plan for how to do it,” says Michael Liner, founder of Liner Legal, a Cleveland-based Social Security disability law firm that works with clients nationwide.
The Pros and Cons of Privatizing Social Security
A main benefit of privatizing Social Security would be the possibility of greater returns on investments. Depending on how the system is set up, it would also likely give workers the opportunity to save money outside the Social Security retirement trust fund, which is expected to be depleted in 2033.
“They are talking about giving people a choice over what happens with their retirement money,” Liner says.
Currently, money in the Social Security trust funds is invested, by law, in U.S. securities. These investments are considered very safe, but they also yield a low rate of return. In 2023, the annual effective interest rate for all investments in the trust funds was 2.387%, according to the Social Security Administration.
By privatizing the program, workers would be able to place their money in index funds which could earn significantly more. In 2023, for instance, the S&P 500 grew 24.23%. On the other hand, the index lost 19.44% in 2022.
“You could make more or you could lose it all,” Liner says.
The risk involved would depend on a person’s investment choices as well as whether guardrails were put in place to prevent catastrophic losses.
The Challenges Posed by Privatization
There are a number of challenges that must be addressed for privatization to be successful. These include the following:
— Influx of money into the market: People overlook the potential impact of moving cash from U.S. Treasuries to the stock market, according to Block. “You’d have trillions of dollars flowing into capital,” he says. That infusion of cash could reduce earnings and weaken the value of dollars invested in the stock market.
— Market instability: U.S. securities are predictable and stable investments, while the stock market is not. “The vulnerability in privatizing Social Security right now is the instability in the market,” Carillo says. The market experienced significant drops in April 2025, and Carillo asks, “How can we sustain that type of loss in the market with Social Security?”
— Administration and fees: Carillo also wonders about the cost of administering a privatized Social Security program. “There are large amounts of fees involved in managing a portfolio of that size,” he says. Private sector workers typically command higher pay than the government workers who currently manage the trust funds.
— Beneficiary limitations: “We are talking about people who are elderly and disabled,” Liner says. “I don’t know how comfortable many of those (people) would be making these decisions.” Poor investment choices could leave Social Security beneficiaries facing a significant shortfall of cash during the years when they need it most.
The question of how people will manage privatized Social Security accounts worries Czajka.
“The 401(k)s are not working,” he says. People don’t save enough, and they tend to dip into their accounts for cash when needed. For Social Security privatization to work, Czajka thinks that some government controls would have to be in place to prevent the accounts from being raided by workers for other purposes.
A privatized plan may also lack the predictability of the current system.
“What Social Security does right now (is) it guarantees an income,” Liner says. But a privatized plan that fluctuates with the market can offer no guarantees.
Social Security Change Requires Thoughtful Process
Despite the potential benefits of privatized Social Security plans, retirement experts see much that could go wrong.
“I think it would be a negative, mostly because it would cause some chaos,” Czajka says.
In a perfect world, privatization should be able to function, but the current political atmosphere isn’t conducive to the type of thoughtful process needed to ensure the system is set up properly, Carillo says.
“Congress is just not going to get it right, and the executive branch just isn’t going to get it right,” he says. If implemented improperly, a privatized system could ultimately harm current beneficiaries. “Never in our history have we missed a (Social Security) payment, and I could see that happening.”
Liner notes that the current administration seems inclined to take big actions, and he worries they will “swing for the fences” without having a plan to address potential challenges. “Until we have a plan that answers these questions, I think it’s a terrible idea,” he says.
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How Privatizing Social Security Would Impact Retirees originally appeared on usnews.com
