8 Ways To Prepare For Retirement in Case Social Security Is Privatized
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
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As President Donald Trump’s administration, with the help of DOGE, aggressively cuts what it deems wasteful federal spending in numerous government departments, it’s reigniting conversations about the future of Social Security.
While any significant changes to Social Security require an act of Congress, given that the Social Security Trust that funds the program may become insolvent in the next decade, analysts and financial experts continue to bounce around ideas for a backup plan.
The most common one to come up is privatization — individuals becoming responsible for saving and investing their own retirement funds instead of the government safety net.
Experts offered some tips on what that could mean for retirees and how to prepare if that were to pass.
Know You’re Trading Security for Potentially Bigger Returns
On the one hand, the money you currently pay into Social Security will net you a limited but predictable income based on your income earned, according to Heath Harris, founding financial advisor at Compound Advisory. If you invested that same amount into the S&P 500, that number would likely increase exponentially.
Privatization would also give you control over where and how you invest your retirement funds, but, according to James Francis, CEO of Paradigm Asset Management, “If you’re not ready for that responsibility, volatility will be the one managing your retirement.”
In other words, if Social Security is ever privatized, people who retire in the future will face a shift from guaranteed income to one that is linked to market outcomes, Francis explained.
Mitigate Risk
To mitigate that risk, you would need to include assets that have a more stable value in your portfolio, Francis said.
“Our institutional clients usually use structured private credit or real estate funds that have been designed to withstand turbulence and preserve capital. These are models that any everyday investor can use through diversified ETFs and annuities.”
Take Greater Risks — If You’re Younger
For younger folks with a longer timeline until retirement, they can, and should, take greater risks by diversifying early in bonds, stocks and low-volatility income-generating assets, Francis suggested.
Another approach is for young investors to “begin uncoupling themselves from future dependence upon Social Security,” according to Josh Anderson, president and CEO of Eagle Legacy and Financial.
“Younger investors need to start planning and investing now in ways to ensure that changes to Social Security do not put their retirement in jeopardy. It may be wise to find a balance of retirement income strategies,” Anderson said.
Boost Retirement Contributions
No matter your age or nearness to retirement, everyone should boost their retirement contributions, Francis suggested.
“These accounts should be considered as your buffer against any policy disruptions. That is because the goal is not just saving more, it’s saving smarter in areas that grow tax-free and offer flexibility,” he said.
Invest In Annuities
Annuities are an investment type that could be more useful if Social Security loses its safety net function, Francis said.
“For those who are nearing retirement, deferred income options or fixed-indexed annuities can provide lifetime payouts that are predictable, which is similar to the function of Social Security today.”
Anderson suggested that replacing the expectation of Social Security with an actual annuity could provide financial confidence and improved quality of life. “People sleep better when they know that there is always money coming in,” Anderson said.
Annuities are also good for those already in retirement who cannot afford to take risks in their investing and need income guarantees to ensure their lifestyle in retirement is protected, Anderson said. And they can also offer income to surviving heirs if you pass on.
Invest Tax-Strategically
When possible, Francis also recommended a mix of Roth and traditional retirement accounts, because privatization could lead to more taxable distributions. “Having both options will allow you to withdraw with more strategy in retirement,” he explained.
Start Planning For a Reduction Now
While privatization is less likely, what’s more likely is a reduction of benefits due to the Social Security Trust running low on, or even out of, funds.
“My advice for those who are concerned about a potential reduction of benefits of more than 20% is to start planning now,” Anderson urged.
Don’t Stick Your Head in the Sand
What you shouldn’t do is stick your head in the sand and ignore the issues. “Under current law, we are staring down the barrel of across-the-board cuts to Social Security benefits when the Social Security trust fund is depleted,” Anderson said.
“Estimates are that this will happen in as little as five to eight years. Regardless of political affiliation, Congress has seemed unwilling to act and just keeps kicking the can down the road,” he added.
Instead, stay updated on the latest policy news. Francis recommended following bipartisan policy research groups and trusted outlets like the Social Security Administration, the Center for Retirement Research at Boston College and your financial advisor — not just cable news or social media.
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