Social Security Administration cuts are a move toward privatization, Wyden says

A stunning reduction in personnel who help with Social Security claims could make it difficult for many people to start collecting benefits, Democrats opposed to cuts by the Trump administration said on Monday.

That would be in the short term, they said. A longer-term result might be privatization of the Social Security system, a goal that senators attributed to Elon Musk.

“DOGE’s attack on Social Security is in my view a first step on the path to privatizing Social Security,” said Sen. Ron Wyden, D-OR, in a press conference Monday afternoon. In a week since the extra-governmental team led by Musk began probing the Social Security Administration, the group has gained “unfettered access to Americans’ health records, bank account information, and tax data,” Wyden said, calling that “the Fort Knox of Americans’ sensitive financial information.”

While it was widely reported that Trump and Musk tasked Social Security’s leadership with up to a 50 percent cut in the system’s workforce, the administration late last week said that figure was false, instead announcing a planned reduction in total headcount from the current “bloated” level of 57,000 to 50,000. But even that could have serious consequences, as the system is already stretched thin. Workers across the agency are being offered buyouts or early retirement packages on a first-come, first-serve basis.

“We’ve already heard about how the current level of employment is at a historical low, while demand for service is at an all-time high,” said Mary Beth Franklin, a Social Security specialist and former InvestmentNews columnist. “Will [reductions] make it more efficient? I hope so. But we have a lot of people who are already waiting hours to get an answer on the phone.”

The Social Security Administration is self-financed, with the cost of administration being about 0.5 percent of the money paid into the system annually, which is considered extremely efficient, she noted. Most of that comes from FICA taxes and the taxes on a portion of Social Security benefits.

It’s also no secret that the system is on a trajectory toward insolvency. With more money coming out of the system than going in, withdrawals became coming from the trusts’ principal balances in 2021, Franklin noted. The trusts will not be able to cover full benefits by 2035 or sooner, unless Congress takes action, generally meaning that benefits are reduced, taxes are raised, or some combination of the two is passed.

Even as the country is in the middle of a “peak retirement” wave, with more people than ever turning 65, the Social Security system is facing an additional strain for customer service due to the recently passed Social Security Fairness Act, which increases benefits for many public-sector workers who paid into the system.

In their remarks Monday, Democrats on the Senate Appropriations Committee focused much of their criticism on Musk, the world’s richest man, who on a recent podcast called Social Security “the biggest Ponzi scheme of all time.”

“Without adequate staff at the agency, there will be people who cannot get their benefits, period,” said Sen. Patty Murray, D-WA. “People should realize that the Social Security Administration is at its lowest level of staffing in 50 years. That’s why fewer than 40 percent of people who call to talk to a Social Security agent get through to talk to someone. That’s why it takes on average 240 days to process a disability claim. And that’s why last year an estimated 30,000 Americans died while waiting on a decision about their disability benefit.”

Even without the issues facing the Social Security system, people nearing retirement have many questions about how to optimize their benefits and when to begin taking them, financial advisors said.

“I address these concerns by specifically running scenarios to see what would happen with their plan if Social Security were to be reduced a little, a lot, or even eliminated. This helps address the concern if they can still retire and still live the life they want,” said John Bell, owner of Free State Financial Planning, in an email. “This may give rise to more clients electing to file for Social Security early, because I find it unlikely that the government would reduce benefits for those already receiving Social Security.”

Former Social Security Commissioner Martin O’Malley recently told CNBC that people should begin preparing themselves now, before a potential “system collapse and an interruption of benefits.”

The likely cuts indeed have people worried, said Daniel O’Brien, manager of wealth management and portfolio analysis at Capital Advisors, LTD.

“While Social Security’s long-term sustainability remains a bigger concern due to the trust fund's projected depletion by 2035, the immediate focus should be on ensuring that individuals can access the benefits they have earned,” he said in an email. “With these staffing cuts looming, beneficiaries should anticipate delays and plan accordingly, whether that means filing for benefits early, keeping multiple copies of key documents, or working with a trusted advisor to assist with a seamless transition into retirement.”