BlackRock CEO Larry Fink warns that Social Security in the US ‘doesn’t grow with the economy’ — proposes 1 big idea that gives Americans a ‘winning’ feeling. Will Trump really agree to it?

“We have a plan called Social Security that doesn’t grow with the economy,” Fink shared with Hoffman at BlackRock’s retirement summit. “You’re detached from the economy, and you don’t feel like you’re winning.”

To remedy this, Fink proposes reforming the system so that Americans can deploy part of their Social Security funds into the private capital market.

Fink touts better performance

Social Security is America’s largest public pension system. This year, the Social Security Administration (SSA) expects to pay out $1.6 trillion in benefits to roughly 69 million elderly and disabled citizens.

The system’s trust funds, overseen by the U.S. Treasury, are required to invest the SSA's reserves in interest-earning securities that are backed by the federal government — mainly special Treasury bonds.

However, the S&P U.S. Treasury Bond Index has delivered an annualized return of just 1.07% over the past ten years, while the S&P 500 has produced an annualized return of 10.58% over the same period.

Fink’s proposed reform would bring the system in line with other global pension funds. Australia’s Superannuation system, for example, offers tax-payers a range of options for how their funds are invested — from a balanced, low-risk approach to a more aggressive, high-growth approach. Most options have a diversified mix of cash, real estate, stocks, bonds, infrastructure, private credit and private equity.

Similarly, the Canada Pension Plan (CPP) invests in a broad mix of assets such as public and private equities, credit, bonds, infrastructure, real estate and other asset classes across the world. Over the past 10 years, the CPP has realized a net annual return of 9.2%.

Fink believes that replicating these pension funds could benefit the Social Security system.

“The beauty of that plan, unlike Social Security — and I know we can’t talk about Social Security in this country — is that you’re investing in real assets,” said Fink. “You’re growing with your country.”

However, Fink's proposal doesn’t appear to be anywhere on the Trump administration’s radar.

Cutting costs rather than boosting performance

President Trump's nominee to oversee the SSA, Frank Bisignano, recently dismissed rumors about potentially privatizing the system.

“I’ve never thought about privatizing,” Bisignano said during his confirmation hearing. “It’s not a word that anybody’s ever talked to me about.”