Why younger generations may be bearing the brunt of social security reforms

Social security will face a critical turning point in the next decade.

The program has been structured so that employee contributions, in the form of payroll taxes, largely fund the benefit income of current beneficiaries. But with 10,000 baby boomers turning 65 every day – and that number is expected to rise to 12,000 in 2024 – the program faces a lack of funds.

The latest projections from the Social Security Board of Trustees suggest that the program’s total fund will be exhausted in 2034 – a year earlier than forecast for 2022. At this point only 80% of the benefits will be payable.

The country has been here before. In 1983, changes were enacted to expand the program’s solvency, including taxes on benefits and a gradual increase in the retirement age from 65 to 67.

Today, this higher retirement age is still being phased in. Those born in 1960 and later must wait until age 67 to receive their full retirement age.

However, with lawmakers vetoing changes that would impact retirees and retirees, the responsibility for future changes to the program remains largely with the younger generations.

“All of these things are coming back to haunt young people,” said Laurence Kotlikoff, a Boston University economics professor and social security expert.

Today, Social Security recipients receive reduced pension benefits when they start at age 62, or 100% of the benefits they earned when they reach full retirement age, which rolls over to 67. However, if they wait until age 70, they get 8%. more per year.

For example, if you were eligible for a $1,000 monthly pension at full retirement age, you would only be paid $700 per month if you started at age 62. Alternatively, if you waited until age 70, you would be paid about $1,240 a month, Jason Fichtner, a former Social Security Administration executive and chief economist at the Bipartisan Policy Center, noted during the panel discussion.

Raising the retirement age would reduce benefits even further at age 62 for those first-time beneficiaries who may not be able to afford to wait.

As a result, consideration should be given to how such a change would affect high-income applicants compared to low-income applicants, Fichtner said.

Other changes could be on the table, broadly including higher taxes, benefit cuts, or a combination of both. These could include an increase in the payroll tax rate — which is currently 12.4%, shared equally between employees and employers — or an increase in the maximum wage income subject to these taxes, which is $160,200 in 2023.

If neither benefit cuts nor tax increases are palatable to politicians, they could fall back on general revenue transfers, according to Fichtner.

That would add another $200 billion to $300 billion a year on top of the current $31.4 trillion in federal debt, he said.

“That means piling on debt for the next generation,” Fichtner said.

“There’s no free lunch here,” he said.

Other creative solutions could also be implemented, such as a carbon tax or a financial transaction tax on stock sales, he suggested.

Social security will probably still exist for younger generations. However, depending on what changes are made, younger cohorts could bear the brunt of the financial burden, Haltzel noted.

“As we’ve seen in the past, politicians don’t want to cause suffering to the people who are retiring now, but to those who are slipping into the future, and that’s why you’re going to be firmly in the crosshairs,” Haltzel told Gen Z viewers .

“Please get involved and stay involved,” she said.