The future of Social Security is a frequent topic of debate, with some experts warning the program’s trust fund could be depleted within the next decade. Add to that the uncertainty surrounding potential changes under President Donald Trump’s administration, and many Americans are left wondering what’s next for the country’s safety net.
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One possibility that’s gained renewed attention: privatization. This could mean shifting part of Social Security from a guaranteed government benefit to individual investment accounts — placing more responsibility on retirees to manage their own funds.
So what would that mean for your retirement?
If privatization were to occur, shifting part of Social Security from a guaranteed government benefit to individual investment accounts, it would place greater responsibility on the individual to track and invest their own funds, according to Christopher Stroup, CFP and owner of Silicon Beach Financial.
“Instead of relying solely on a fixed payout, future retirees could direct a portion of their payroll taxes into personal retirement portfolios. This would introduce more market exposure, flexibility and individual responsibility into what is now a shared, pooled system,” he said.
For people who want greater control over their funds, privatization could offer that and more.
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Privatization could also offer higher potential returns, especially for younger, higher-earning individuals, by allowing personal investments in the stock market, Stroup said.
It may also increase transparency, control and ownership over retirement assets.
In addition to increased control and the potential for higher returns, another potential benefit of privatization for individual retirement savers could be increased flexibility, according to Aaron Razon, a personal finance expert at Coupon Snake.
“With privatization, individuals would have more options than the traditional benefits provided by Social Security, and with these increased flexible options allowing them to choose their investment options, benefit structure and retirement age, they would be able to tailor their retirement savings and investment strategies accordingly,” he explained.
Another benefit of privatization for individual retirement savers is what Razon called “ownership and portability,” which could be appealing to individuals whose career path has been nontraditional.
