Is the Privatization of Social Security Back on the Table?

August 18, 2025

The concept of “privatizing” Social Security (SS) – that is, generally moving part or all the program’s guaranteed government benefits into individually managed investment accounts — is not a new idea. But when it was last seriously debated in Washington, DC, over two decades ago, it proved unpopular and did not advance. However, with the creation of “Trump Accounts” — a new tax-advantaged savings account created as part of the “One Big Beautiful Bill Act” (OBBBA) signed into law on July 4 – none other than the Secretary of the Treasury has suggested these could be a “backdoor for privatizing Social Security.” Others think the recent Social Security Administration (SSA) staffing reductions, budget cuts and transition to online or in-person visits for certain SS services are damaging SS customer service and consumer confidence in the SSA to the point the Trump administration may outsource the program to the private sector, which some warn could eventually evolve into privatization. And if the greatest defined benefit (DB) program — accounting for 21 percent of the federal budget, making it the single largest government program – is dismantled, will there be implications for public pension plans’ DB model?

On August 14, Social Security celebrated its 90^th birthday. It has collected approximately $2.8 trillion more in payroll taxes and interest than have been paid out since FICA taxes started being collected in 1937. Nearly four generations of Americans—98 percent of the U.S. population alive today—have never lived without the Social Security program, and it has never missed a payment in over nine decades, according to “Social Security at 90: A Bipartisan Roadmap for the Program’s Future,” a January 2025 report based on a public opinion research initiative produced by the National Academy of Social Insurance (NASI) in coordination with the AARP, the U.S. Chamber of Commerce, and the National Institute on Retirement Security (NIRS).

However, according to the July 2025 Social Security Trustees’ Report, if no action is taken to address the ongoing depletion of reserves in the combined Old-Age, Survivors, and Disability Insurance (OASDI) trust funds by 2033, a 23-percent cut in benefits for all SS participants, retirees as well as future recipients, will automatically take effect in order to bring benefits in line with ongoing contributions.

At the same time this impending depletion of the OASDI is receiving increased attention, Social Security and the SSA have also come under serious criticism, with both President Trump and Tesla Chief Executive Elon Musk — who effectively created and initially ran the Department of Government Efficiency (DOGE) — openly speaking about finding millions of dead recipients still receiving SS benefits.

[However, experts say the file DOGE found and used as the basis for this criticism lists every individual with a Social Security number, not necessarily beneficiaries currently receiving money. As MarketWatch explains, the file has a place to enter the person’s name, number and date of birth, but no place for date of death — which is why some beneficiaries would appear to be in their 100s, 200s and even older. “The people at DOGE jumped to the conclusion that those people are still getting benefits,” said John Svahn, SSA commissioner during the early 1980’s. “They might have been 85 in 1936 when they got their number,” he pointed out, but said “I can guarantee they’re not living now and not getting Social Security.”]

Consequently, SSA has seen its workforce reduced from 57,000 to 50,000 employees; spending cuts in information technology and non-public-facing real property; the downsizing of regional and field offices; and some telephone services, such as identity verification, moved to online or in-person visits, according to reporting by the Associated Press.

In short, the Trump administration has taken several steps to drastically transform the program, “which some experts argue risk moving it toward privatization,” according to reporting by MarketWatch. However, Nancy Altman, president of “Social Security Works,” an advocacy group for the preservation of Social Security benefits, is more worried that the administration of benefits could be privatized under Trump, rather than a move toward privatized accounts. For example, during a closed-door meeting, then-acting SS commissioner Leland Dudek mentioned numerous avenues to alter the agency, with one option being to outsource customer service, according to a recording ProPublica obtained.

However, privatizing the administration of benefits is seen by many as a step on the road to a private accounts/privatization approach for Social Security. “Some are concerned that growing pressure on the agency will eventually lead to an outsourcing of the agency’s responsibilities, which could eventually evolve into privatization,” Moneywise.com reports. For example, as Jason Fichtner, former acting deputy commissioner at the SSA under Presidents George W. Bush and Barack Obama, warns, “You take them down the road of, ‘Why do we have Social Security in the first place? Why don’t we have a private system if the government can’t do its job?’”

Former Social Security commissioner Martin O’Malley, who served during the Biden administration, has also warned beneficiaries that all the recent changes at the SSA could result in not just a disruption to customer service, but also possibly benefits. “Most of the actions necessary to create a total system collapse of the Social Security Administration have been taken,” O’Malley said during a National Academy of Social Insurance event held earlier this year.

Finally, making it more difficult for beneficiaries to conduct routine business will lead to frustration, and eventually that will “undermine public support for this agency,” says Maria Freese, senior Social Security expert at the National Committee to Preserve Social Security and Medicare. “Step two is that the Republicans can come in — those in particular who for decades have argued it be privatized — and say, ‘Obviously the public sector doesn’t work, we have to privatize all the functions of the agency and then privatize the benefits too,’” she stressed.

So, is the privatization of Social Security on the table – both in terms of outsourcing its administration as well as creating private accounts in lieu of Social Security’s guaranteed benefits?

While no specific privatization proposal has currently been formally introduced, the last serious version appeared during George W. Bush’s administration, when the “President’s Commission to Strengthen Social Security” – a bipartisan, 16-member commission created to develop recommendations for modernizing the system while preserving benefits for current retirees and building wealth for younger Americans – issued a 2021 report proposing the creation of voluntary personal retirement accounts, permitting workers to divert a portion of their payroll taxes into individually controlled accounts that could be invested in stocks and bonds, aiming for higher returns than traditional Social Security. Specifically, workers could divert a third of their payroll taxes – up to $1,000 – into a privatized account where they could choose from five index fund investments.

[Following his successful 2004 reelection campaign, President Bush designated Social Security reform/privatization as his top domestic priority and strongly began promoting it in 2005, arguing that — as he had mentioned the issue repeatedly during the 2004 campaign — his reelection therefore represented a mandate to move forward on what he called personal accounts. However, as the Brookings Institution, a Washington, DC think-tank, explained, “the more the President talked about Social Security, the more support for his plan declined,” and by October 2025, “even the President had to acknowledge that his effort had failed.”]

Most recently, in July 30 remarks at an event hosted by Breitbart News in New York City, Treasury Secretary Scott Bessent appeared to give new life to the idea of SS privatization, saying that a tax-deferred investment program for newborns enacted as part of the One Big Beautiful Bill Act (OBBBA) could lead to the eventual privatization of Social Security.

The new “Trump accounts,” originally named “MAGA accounts,” allow parents of a child under the age of eight to contribute up to $5,000 each year – starting in 2026 –on behalf of their children. Contributions can also come from employers and charitable organizations. The funds must be invested in portfolios tied to U.S. stock indexes and are structured similarly to individual retirement accounts. Account beneficiaries cannot withdraw from the account until age 18, with penalty-free withdrawals permitted after age 59 and a half or earlier for college expenses or a first home purchase. A universal contribution from the Federal government of $1,000 for each baby born during 2025 through 2028, regardless of their family income, was also created.

“In a way, it is a backdoor for privatizing Social Security,” Bessent said. “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,” he continued.

Congressional Democrats were quick to criticize the comments, with Senate Minority Leader Chuck Schumer (D-NY) saying that “Bessent actually slipped and told the truth: Donald Trump and his government want to privatize Social Security.” Congressman Richard Neal (D-MA), the top Democrat on the House Ways and Means Committee, commented that Bessent had “said the quiet part out loud: Republicans’ ultimate goal is to privatize Social Security, and there isn’t a backdoor they won’t try to make Wall Street’s dream a reality.”

However, Bessent quickly clarified his position in a post on X (formerly Twitter), writing, “Trump Baby Accounts are an additive benefit for future generations, which will supplement the sanctity of Social Security’s guaranteed payments.” He also said the Trump Administration “is committed to protecting Social Security and to making sure seniors have more money.”

What are some of the pros and cons of Social Security privatization? A U.S. News & World Report story covers some key points, which include:

Currently, money in the Social Security trust funds is invested, by law, in U.S. securities. In 2023, the annual effective interest rate for all investments in the trust funds was 2.387 percent, 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,” the story points out, noting that in 2023, the S&P 500 grew 24.23 percent. However, the index lost 19.44 percent in 2022.
Privatization would produce an Influx of money into the market. “You’d have trillions of dollars flowing into capital,” according to Michael Liner, founder of Liner Legal, a Cleveland-based Social Security disability law firm that works with clients nationwide. “That infusion of cash could reduce earnings and weaken the value of dollars invested in the stock market,” he notes.
Market instability is a concern, as U.S. securities are predictable and stable investments, while the stock market is not.
Some worry about the cost of administering a privatized Social Security program. “There are large amounts of fees involved in managing a portfolio of that size,” says George Carrillo, co-founder and CEO of the Hispanic Construction Council.
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 [investment] decisions,” he says. Poor investment choices could leave Social Security beneficiaries facing a significant shortfall of cash during the years when they need it most.
A privatized plan may also “lack the predictability of the current system, while Social Security guarantees an income,” Liner says.

One last point regarding privatization is the impetus it provides for the conversion of DB plans to a defined contribution (DC), “individual accounts” model for retirement security in the public sector. This has long been “the holy grail” of public pension critics and is still being doggedly pursued by groups such as the Reason Foundation.

For example, Reason has produced model legislation “intended to provide a policy-driven framework for state and local governments to create a new (or improve an existing) defined contribution (DC) retirement system for public employees.” Reason insists its model is a “cutting-edge, next-generation DC system framework” that provides “an emerging policy-based plan design that synthesizes the best aspects of the defined benefit (DB) pension and DC retirement models.”

Key features include:

A core IRC Section 401(a) defined contribution platform as the “primary vehicle” for the mandatory features of the plan.
Mandatory participation “to eliminate the inherent weaknesses of voluntary-only savings approaches.”
A defined retirement income replacement objective defined by the employer. Reason says this is “similar to a DB plan, except that there are no employer guarantees of reaching the targeted income level so there is no chance to accrue unfunded pension liabilities of any kind.”
A defined contribution rate, with total employer and employee contributions “defined based on what is determined to be necessary to provide that retirement income objective” and paid into a personal individual retirement account that belongs to the employee. Reason says matching employer contributions “may also be considered but are not a best practice for a core plan intended to provide substantial accruals for a broad class of employees.”
A professionally managed set of investment offerings with individual accounts’ assets default invested in “professionally managed funds that are designed to create high probabilities of meeting the retirement income objective based on available demographic and financial information for each participant and do not require decisions from the employee.”
A “default benefit payment structure” providing lifetime income benefits through “group in-plan annuity products with additional options (lump-sum, periodic payments, etc.) that can be customized by each participant to meet their own individual needs and circumstances.”

Remember Grover Norquist, the president of Americans for Tax Reform (ATR)? Norquist favors dramatically reducing the size of government, and in a 2001 interview with NPR’s “Morning Edition,” famously said: “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.”

Norquist has also often said that moving from DB to DC pensions for the state pension system is linked with Social Security reform and he sees a clear connection between converting DB’s to DC’s and the privatization of Social Security. At the very end of a very long article on him in the May 14, 2001 issue of The Nation, it was noted that “State by state, he’s planning to launch a campaign to dismantle and privatize state pension plans and their trillions of dollars of public funds held as investments for retirees. ‘Just 115 people control $1 trillion in these funds,’ he says. ‘We want to take that power and destroy it.'”

Norquist is still active — and the Reason Foundation is still aggressively pursuing the conversion of public sector DB plans to DC plans. Privatization of Social Security would be a major accomplishment in pursuit of that goal.