What can we do to make sure future generations have the same benefits when they retire as their parents and grandparents did?
Retirement. It’s a word that many Millennials rarely give the light of day, let alone allow to play an important role in their financial planning. There are multiple ways one can receive money when they retire such as a 401k or a retirement savings account (RSA). However, the most notable way is through the 80-year old government program that every American citizen pays into when they enter the work force and has access to when they retire: Social Security. At least for now…
According to thier 2016 report, the Social Security and Medicare Boards of Trustees announced that both the Social Security Disability Insurance (SSDI) and Old Age and Survivors Insurance (OASI) trust funds will be depleted by 2034. Due to these projections, Social Security will face automatic benefit cuts of 21 percent if not seriously reformed, meaning that granny’s paycheck, which you and your employer pay for – both paying 6.2% percent each, or an eighth of your wages, is going to get a serious haircut.
Reforming Social Security is seriously overdue. Since the Social Security Act passed in 1935, it only experienced one major reform in 1984.
What does this mean for Millennials? Honestly, the outlook isn’t good. Following the Trustees’ 2016 report, Al Downs, Economic Policy Analyst for Generation Opportunity, a nonpartisan nonprofit dedicated to ensuring economic freedom and prosperity for Millennials had this to say about Social Security:
“[the] report is further proof that, absent reforms, we are paying a significant portion of our paychecks into an insolvent government program from which my generation will see little. Since the last major reform to Social Security in 1984, we defeated the Soviet Union, ditched the LaserDisc, and every Millennial entered adulthood. Despite all this change, the 2016 Social Security Trustees Report echoes the message of looming fiscal crisis included in every such report since 1985, while offering even more clarity on the nature of the problem.
Americans in [the Millennial] generation are aware of this failure and aren’t counting on the government for retirement support, as recent surveys have shown we are actually saving more than older generations. But we are still on the hook for an outdated program, the single biggest in the federal government, that will cost $929 billion this year alone… Millennials are already rethinking retirement, it’s time for politicians in Washington to tune into reality and fix Social Security.”
The earliest statistics show that in 1945, ten years after the Social Security Act passed, the ratio of working Americans to Social Security recipients was roughly 42-to-1. Today, it is under 3-to-1 and expected to drop down to 2-to-1 by 2030.
What is also worth noting is that when Social Security was created, the average life expectancy in the United States in 1940 was 62.9 years. Social Security’s retirement age was 62, meaning the average American was on it for less than a year, not too burdensome on the system. Today, early retirement benefits are still available at 62, but the full benefit ages are 66 for Americans born between 1943 and 1954 and will gradually rise to 67 for those born after 1960. Yet the average life expectancy today is roughly 79 years, meaning that even those who wait until they are 67 to retire will be on it for an average of 12 years.
Thus, more people are on it and they are on it longer than ever before. The interesting thing here is that this provides two unique problems to Millennials and even Generation Xers. First, our parent generation will be early into its retirement age when the system goes kaput. Second, Millennials will be in the full swing of their careers, paying into the system that will be going insolvent nearly twenty years before they are eligible for the benefits.
So, how can this problem be fixed?
Well, there are a few ways to fix a problem, none of them are going to be great but hey, the first step to solving a problem is admitting you have one. Obviously, the first idea is to seriously reform Social Security for the first time in over thirty years.
One major reform one could be to make Social Security a “lock-box,” meaning that the government could enact a law that would stop the government using the surpluses in the Social Security trust fund to fund other operations, which the Treasury Department currently practices. Doing so ensures that the money taken in from the Social Security tax is used for the sole purpose of paying out benefits. If government can’t get the money for other programs and operations without Social Security money, maybe it should stop said practice(s).
Another possibility, though much more radical in political ideology, is to allow Millennials, which are currently saving more than older generations, to opt-out of paying into Social Security, thus rejecting potential benefits, and take more control (and responsibility) over their financial future, taking that 6.2% tax and placing it in their 401ks and RSAs. Those who aren’t as confident in their saving skills could stay on the system.
Doing so would cause benefits to drop drastically, and Millennials would more than likely have to allow their parents to move back in with them given that many would potentially opt-out of the system.
Combining these two proposals to allow for a phased process of ending Social Security and allowing individuals to have more money for themselves and retirement would be the best solution. For example, if the government could suggest that everyone born after 2015 would be able to opt-out of the system while slowly allowing those who pay into it to keep their benefits but at a lower tax rate to incentivize saving more money in private retirement savings accounts.
Unfortunately, in today’s times, touching Social Security is political suicide and doing so can ensure any politician that runs on serious reforms and cuts will be lacking in funding from the senior voting base. However, if we as a nation want to reduce our deficits and debt, which has been a huge problem since our nation’s birth, we need to look at the program that is the largest portion of budget at 24% of total government spending. Taxing people more is not going to solve the problem.
These are tough proposals, but they are needed for a tough problem. Someone has to fix the problems of today so that America’s generations of tomorrow have a financial future.
Christian Aponte works as a political and grassroots operative in North Carolina. He holds a degree in political science from University of North Carolina-Chapel Hill .