A hedge fund CEO is advocating for the government to invest Social Security in the market. But experts worry that this will create a windfall for Wall Street — not retirees.
Larry Fink, chairman and CEO of BlackRock, urges policymakers to consider using America’s top security system as a large trading account – using a loan. In his annual investor letter, the hedge fund titan advocates what he calls “market-based approaches.” He writes, “Is part of the [Social Security] is the plan as heavily invested as other long-term pension plans?”
Experts are skeptical. In a 2023 paper, researchers from the Center for Retirement Research at Boston College wrote, “Equity investing involves significant risk.” And that risk can be great. While the S&P 500 has returned nearly 16% over the past year and is estimated to be about half that over the long term, this forward momentum is inconsistent. In 2008, for example, the value of the S&P dropped by almost 40%.
Another important issue, according to Michael Wicklein, currently a Ph.D. student at the University of Chicago and one of the authors of the paper, “where investment money will come from.”
“Because Social Security is already facing projected deficits, building a meaningful asset pool may require higher taxes paid or borrowing from ordinary income,” he told Money via email. He adds, neither of these two options, which will deal with the two problems of the system which cannot pay the debts in just six years.
In the BlackRock letter, Fink refers to a proposal proposed by Sens. Bill Cassidy (R-La.) and Tim Kaine (D-Va.) that would create a new, $1.5 billion fund to benefit retirees.
“I doubt that will help the Social Security trust fund in any meaningful way — or the beneficiaries,” said Mark Zandi, chief economist at Moody’s Analytics.
Zandi expresses two concerns about this program. First, the government will have to pay someone to manage all that money. “Wall Street is going to want money,” he says. Those fees will reduce the investment income.
The big problem: Like Wicklein, Zandi points out that the only way the Treasury Department can “create” the $1.5 trillion is to borrow it, either by taxing the American people more or by issuing debt. Combined with administrative costs, the cost of servicing this debt can put a huge dent in the money the government – in other words, taxpayers – can get from taking on the risk of investing.
The authors of the 2023 paper reached the same conclusion, writing, “borrowing to [invest in equities] does not guarantee any additional Social Security benefits.” They agree that the idea is attractive, but given the added risk and cost of borrowing and managing funds, “it may be past time to raise enough taxes to raise a large enough trust fund to make the effort worthwhile.”
Some policy experts use strong language to describe the proposal. “This is a risky debt-financed gamble that could come with significant risks and costs,” the nonpartisan Committee for a Responsible Federal Budget said in an analysis published this week.
What should be the role of Social Security, anyway?
“Social Security provides stability, but it doesn’t allow most Americans to build wealth in a way that grows with their country,” Fink wrote in his investor letter.
This is wrong. But the idea that people should rely on Social Security to increase their net worth in the first place is wrong, Zandi said. “Social Security is a way to help disabled and elderly people. I don’t know if it is the vehicle you want to use to build wealth,” he said. “[It] designed to provide support to all Americans. Given that objective, you want to be as cautious as possible and as smart as possible. “
People build wealth by investing in stocks or bonds, buying homes and earning interest on their savings. While Fink makes the point that most Americans don’t have the opportunity to do this, Zandi says there are many other ways policymakers and corporate executives can make these wealth-generating methods more accessible and encourage people to build a nest egg.
The traditional model of retirement funds is often described as a three-legged stool. Ideally, retirees will be able to receive income from a combination of Social Security, employer pensions and private investments such as 401(k)s and brokerage accounts.
Private equity investment returns fluctuate based on market performance. Pension funds hire professionals to manage investments in a mix of assets, which they do with varying degrees of success. “Even though the stock market grew more than 40% from 2023 to 2025, pension funds got only a 15% return on their assets during that time,” notes another paper by the Center for Retirement Research.
Social Security, on the other hand, was designed to prevent loss. Its fast-dwindling trust funds are held in ultra-safe US government debt. The low yield of Treasuries compared to stocks is not a fault that needs fixing. It is a security payment that allows Social Security to serve as a stable source of income.
“You want to invest that in the safest thing in the world,” said Zandi. “It must be rock solid.”
More from Mali:
Millions Face Tax Shock Over Social Security Refunds. Congress Rushes to Fix It
The Social Security Trust Fund Will Run Out of Money in 2032, a Year Sooner Than Expected
I Plan To Claim Social Security In Full Retirement Years Just To Invest. Is This Genius?
