BlackRock CEO suggests Social Security fix

Social Security’s trust fund is, undeniably, on very shaky financial ground. Some estimates suggest it could be out of money as soon as 2032, necessitating a painful automatic cut to retirement benefits that would leave many seniors without essential funds that they need to cover their costs in their later years.

There have been a number of proposals to fix Social Security, each of which has some big downsides and some major opponents. There’s also a new suggestion on the table, made recently by BlackRock CEO Larry Fink.  Fink’s proposal is worth taking a look at, as there are some definite potential upsides to the solution — although it’s not without risk.

Here’s what the BlackRock CEO wants to do to Social Security

Fink’s suggestion for Social Security actually comes from a proposal made by Senators Bill Cassidy, R-Louisiana, and Tim Kaine, D-Virginia. The bipartisan proposal would allow for the creation of a new investment fund for Social Security to supplement the existing trust fund.

While the existing trust fund is largely invested in Treasury securities, the new fund would be invested in stocks and bonds instead. As Fink made clear, this proposal doesn’t privatize Social Security, and it doesn’t gamble the entirety of Americans’ retirement money on the stock market. It would also result in no change of benefits at all.

Instead, the fund would be seeded with $1.5 trillion from the U.S. Treasury and would then be invested in the market for a period of 75 years. As the fund matures, it would pay back the money that the U.S. Treasury contributed, while it would use the returns it had earned to supplement Social Security taxes and provide additional money to pay the benefits retirees are promised.

In other words, the Treasury would loan Social Security money to invest, and it would get that money back, but Social Security retirees would benefit from the growth of the U.S. stock market.  As Fink pointed out, every dollar put into the stock market since 1989 has grown to more than 15 times the value of a dollar tied to median wages. And there’s the potential for even more wealth to be created in the stock market in the coming years as a result of the rise of artificial intelligence, which could create greater economic value.

Fink believes this plan would allow more Americans to benefit from AI gains by broadening opportunity through investing to generate money to protect Social Security benefits. 

Will this plan work?

It is unclear if this plan would get enough bipartisan support to pass, although it already has some support from both sides of the aisle. One of the biggest obstacles is that it would require an additional $1.5 trillion from the treasury to get off the ground.

Sita Slavov, a George Mason University professor of public policy, has expressed some concerns about the treasury coming to the rescue,  as simply raising the debt ceiling and borrowing more to provide funding would ultimately not address the program’s shortfall in the same way as raising payroll taxes would.  Those payroll taxes are a direct source of support for Social Security, and have historically been the main source of benefits funding. 

Ultimately, it is clear that something has to be done, so at least some new ideas are being discussed that may give lawmakers more options than the same mix of solutions — like raising taxes or cutting benefits — that no one has wanted to embrace.