A Millennial’s Perspective on Social Security
Social Security is the last thing on a Millennials’ mind.
The only time I hear about Social Security is when I go to my grandparents’ house and when I see it randomly cut out of my paycheck. However, according to the National Academy of Social Insurance (NASI), 60 million Americans benefit from Social Security, 40.2 million of those are retired workers. Social Security pays monthly benefits that replace part of the earnings that are lost when workers who have paid into the program become retired, disabled, or died.
On July 13, the National Academy of Social Insurance (NASI) hosted a day-long event, “Demystifying Social Security: 2016 Academy.” I attended the event as an intern representing the American Retirement Association. There was only one thing racing through my mind as I entered a room full of Millennials: I was excited I wasn’t the only young person in attendance!
Social Security can mean a variety of things for people, in most cases it serves people’s financial needs in tremendous ways. Despite what it means to them, most Millennials including myself, don’t view Social Security as an important issue.
At the event, I sat at a table with five other Millennials wondering what the Baby Boomers in the room had to say about something we weren’t too fond of. Many of us think Social Security insurance is a scam. Not to my surprise, I have reservations about it myself. There is a common concern we all seem to share.
During the NASI session attendees were told to play a game. We were to approach the issue of Social Security sustainability as policymakers, and to reach consensus on a package of Social Security policy changes. We had to keep in mind both the solvency of Social Security’s long-term financing and the adequacy of Social Security benefits. The task was challenging because not everyone could agree on some of the choices plus we had to assess all the side effects it might have.
As you can imagine, considering all the factors and assessing the risks can be overwhelming — especially because closing the financial gap is something we actually need to worry about in 2034. During the exercise, we came up with four solutions:
1. lift the taxable earning cap over a five-year period so it covers 90% of all earnings in 2022;
2. raise the tax rate by 0.05 percentage points per year for both workers and employers;
3. reduce benefits of higher earners by changing the benefit calculation formula so that individuals with earnings above the 60th percentile of earnings would receive lower benefits in proportion to their lifetime earnings than workers with earnings below the 60th percentile; and
4. increase the cost of living adjustments (COLA) by basing them on the CPI-E, which specifically measures the inflation experienced by the elderly.
These solutions closed the financing gap with only 1% left over, which seems pretty darn good for a bunch of Millennials who don’t know much about Social Security or policymaking. We were pleased to find out we were the only group that closed the financing gap with only 1% left over.
This activity made us wonder about what policies are in place now, how effective they are and whether they would they be beneficial to Millennials in the long run. The answer is no.
We learned that Social Security will face a shortfall, and only 75% of benefits could be paid in 2034. Most of us know that the taxes paid by workers and their employers don’t go into dedicated individual accounts, which is why we don’t trust the “system.” After all, who’s to say that the money taken from our paychecks will ever come back to us?
Basically, there is no guarantee how much Millennials, and Generations X, Y and Z will get from Social Security by the time they’re ready to retire. We would have to rely on our own savings for retirement, which is frightening because the majority of us don’t know how to save and/or have not started doing so. How are we going to believe in something we can’t trust?
In conclusion, we all may have different opinions on Social Security and its purpose, especially because of generational and demographic differences. Most of my fellow Millennials and I have not yet benefited from Social Security, nor does it seem like we ever will if something isn’t done to prevent the shortfall.
Bayza Anteneh is a summer intern at the American Retirement Association.
Opinions expressed are those of the author, and do not necessarily reflect the views of ASPPA, or its members.