Will Younger Generations Receive Social Security Benefits?
The future of Social Security benefits has been discussed extensively by experts for the last two decades. At around the change of the millennium, economists started seeing an issue with the way the benefits are paid for by the workforce and received by retirees.
In the early 2000s, college professors across the nation warned younger generation students what would happen to Social Security by the time they became of retirement age. It has often been said that once the Baby Boomer generation retires, the current workforce will be paying for the benefits of retirees because the money the retired generation of Baby Boomers put into the system would be spent.
Therefore, even though people in younger generations like Generation X, Millennials and Generation Z will be paying into the Social Security retirement program, there won’t be any of their money left in there when they get to retirement. Even though reports from trustees have differed over the past three years, most experts agree that there is a problem with the ability of the current system to maintain itself without any changes being made.
Cash Reserve Will be Depleted by 2035
According to the annual report issued in 2021 by the social security board of trustees, Social Security’s cash reserves will be depleted by 2034, which was a year earlier than they reported in 2020. This means that the annual taxes collected by those paying into Social Security were only expected to cover about 78 percent of the benefits paid out after 2034.
Then earlier this year, the board of trustees issued another report showing that things have slightly improved. According to an article published by CNBC, the Social Security cash reserves are now expected to last until 2035. But now in 2035, only 80 percent of the benefits received by retirees will be payable by the workforce.
What Caused these Problems for Social Security?
The CNBC article goes on to explain that the shortfall of Social Security can mainly be explained by changing demographics over the last several decades that have led to a gap between how much money Social Security pays out and what it brings in.
“In 1964, women had an average of 3.2 children. By 1974, that fell to 1.8,” the article reported. “That has led to a reduced ratio of workers to retirees, especially due to the size of the Baby Boomer population, which is estimated to include about 73 million people. About 10,000 Baby Boomers turn 65 every day; by 2030, all Boomers will be at least that age. Moreover, people are living longer. Taken together, that has contributed to the program’s 75-year deficit.”
After legislative changes to Social Security occurred in 1983, Social Security had more money coming into the system than it was paying out. But that started to change in 2010 when the amount of money getting paid out to retirees started to exceed the money coming in from workers.
When that started to happen a decade ago, the government started to pull money from the interest on the social security trust funds to pay the benefits. Then in 2021, the government was forced to start pulling from the trust funds to pay the benefits for retirees.
What Can be Done to Fix the Problem Before 2035?
The bottom line is that if nothing is done to fix the problem in the next 13 years, the worst-case scenario is that Social Security benefits will have to be cut for retirees. But experts say that a future cut in benefits is not likely to happen.
“The ramifications of that event would be beyond traumatic for everyone in the country,” Joseph E. Roseman Jr., a Social Security expert and retirement planner at Retirement Capital Planners said in an article published on the Go Banking Rates website. “You’ve got a national disaster on your hands.”
Therefore, it seems likely that lawmakers will make some moves before the cuts will occur, but experts say that action should be made sooner than later. Earlier this year, senators Bernie Sanders and Elizabeth Warren proposed a bill that would extend Social Security’s solvency for 75 years and increase benefits for all retirees by $2,400 a year ($200 per month) by raising the taxes of the wealthy. However, past efforts to pass similar bills did not garner much traction in congress.
The article on GoBankingRates.com described the advantages and disadvantages of several ways the government could balance the Social Security budget. The government could propose legislation to raise the payroll tax rate or increase the wages that are subject to Social Security taxes. Other options include raising the full retirement age or reducing the social security program’s annual cost of living adjustments.
What Will Retirement Look Like for Generations X, Z and Millennials?
Even during the current state of the system, most financial experts will tell people of all generations to not put all their eggs into one basket when it comes to retirement. “I would never advise anybody to live on Social Security alone,” Social Security expert Roseman said.
And it seems as if people in the younger generations tend to realize the problems with Social Security in the future, they are still planning on retiring, but through other means. Surveys have shown that the majority of people in the Millennial and Gen Z age groups say that they plan to retire before the age of 60. And it has been reported that those in Gen Z have been putting around 14 percent of each paycheck into retirement, which is a larger amount than any of the older age groups.
[…] November, The Maverick Observer reported that Social Security’s cash reserves will be depleted by 2034 if no action gets […]