The Social Security program has been providing vulnerable Americans with a stable income during their retirement or in the event of becoming disabled for close to a century now. The insurance program is run by a federal agency known as the Social Security Administration (SSA). The program is funded mainly through a dedicated Social Security payroll tax, alongside two major trust funds (Old Age and Survivors Insurance trust fund and Disability Insurance trust fund).
The program does not appear to be on the steadiest of legs in recent times, however. The latest annual report from the Social Security Board of Trustees has revealed that the projected shortfall for the combined Old Age,Survivors,and Disability Insurance trust fund has been moved up a year to 2034. Parallel to this, many people have also been raising concerns regarding the integration of the Trump Administration’s Department of Government Efficiency (DOGE) within the SSA.
At the beginning of the year, DOGE-enacted cutbacks had taken place at the agency and as a result, many began wondering if these cuts are the start of forced privatization for Social Security. Here is what you need to know.
What is Social Security privatization?
As things currently stand, 12.4% of a worker’s wages are paid into Social Security taxes which then earns them the required work credits that will enable them to claim benefits upon retirement. If Social Security becomes privatized, however, a fraction of the money that would have otherwise been contributed towards payroll taxes would now be put toward a personal investment account — the responsibility for which would fall on the individual.
Privatizing Social Security would, without doubt, cause a major shift in the way retirement income savings are handled. Individual retirement accounts, more commonly referred to as IRAs, for instance, would likely become a far more valuable option when planning out retirement savings. This is because IRAs will have a higher number of investment options than your average 401(k) or other employer-provided pension plans.
“IRAs allow you to make tax-deferred investments to provide financial security when you retire,” according the the IRS. As such, if Congress decides that Social Security needs a major revamping and as a result, the privatization of Social Security does indeed come to pass, the topic of increasing IRA contribution limits is more than likely to come up in Congress since it will be means of better supplementing retirement funds.
Investment strategies will naturally differ from person to person in relation to what is best suited for them when attempting to build up a diverse portfolio. However, one thing that will be shared amongst these individuals is a higher level of financial literacy once they have worked around the initial learning curve of investments. Eventually, you could even introduce annuities to your IRA as a source of steady income to supplement your other investments.
Push back on the privatization of Social Security
The new One Big Beautiful Bill Act includes a tax-deferred investment account that allows parents to contribute a maximum of $5,000 annually for their children. This investment account is being referred to as the “Trump Accounts” and at a Breitbart policy panel on Wednesday, Treasury Secretary Scott Bessent claimed that the “Trump Accounts” are “a backdoor for privatizing Social Security.”
Whilst Bessent first agreed that the accounts are good way to generate a better understanding of investments for Americans, and that it will allow for retirement savings, Bessent then went on to state the following: “In a way, it is a backdoor for privatizing Social Security. Social Security is a defined benefit plan paid out. To the extent that if, all of a sudden, these accounts grow and you have in the hundreds of thousands of dollars for your retirement, then that’s a game changer, too.”
Following this, on Thursday, White House press secretary Karoline Leavitt then clarified that “What the secretary of Treasury was saying, and what this administration believes, is that these Trump newborn accounts — which is an incredibly creative and great provision that was in the One Big Beautiful Bill for newborn children, and families and future generations of Americans — will help supplement, not substitute, Social Security.”