Retirement is not something most Millennials think about often. This is not to say Millennials do not care about or prepare for their future. Research has shown that Millennials, on average, prepare for their retirement sooner than any previous generation. This is largely due to the advancements in technology that allows anybody to open a savings account on their phone or tablet.
Although polls show that Millennials are more confident in themselves and their financial futures, few recognize how some federal government programs, like Social Security, could dampen their ability to save.
In order to shed light on the impact Social Security does and will have on Millennials, NTUF served on a panel last week to educated Millennials on the future of Social Security. Generation Opportunity, a nonprofit that aims to empower Millennial Americans to promote a free society, hosted the Social Security event entitled "Reclaiming Our Future," which included speakers from Generation Opportunity, NTUF, and Red Alert Politics.
The focus of the panel was to educate Millennials on the shortcomings of Social Security, how it impedes them from pursuing certain employment and retirement opportunities, and how they can help persuade lawmakers to reform Social Security. The panel agreed there were four main points that Millennials should note about Social Security:
Social Security is on a Road to Insolvency: According to the Congressional Budget Office, the Social Security trust fund will be exhausted by 2029, long before even the oldest Millennials reach the full retirement age of 67. In other words, Social Security as currently structured will not be there for Millennials when they retire.
Social Security’s Funding Mechanism Hinders Employment Opportunities: Social Security functions as a pay-as-you-go program with current workers paying for current and pending beneficiaries. Current workers pay for Social Security beneficiaries predominantly through the FICA tax, or payroll tax, which taxes a percentage of a worker’s income before they even receive their paycheck. The impact of this tax can be seen in the withholdings section of a paycheck stub.Since employers have to pay 6.2% of the payroll tax, they see it as a tax on labor. This means that some employers will not hire people if they see the cost of paying the worker and paying the payroll tax as greater than the benefit they receive from hiring a new worker. This can be detrimental to low-skilled and inexperienced workers, like younger Millennials.
Social Security will place a Debt and Budgetary Burden on the Economy: According to the Social Security Trustee Report, Social Security owes nearly $11.4 trillion in unfunded obligations over the next 75 years. Moreover, if Social Security is not reformed, it and other major health care programs will consume over 50% of all federal noninterest spending. This kind of spending will place strains on the economy and the government's ability to allocate funds for discretionary spending areas, such as national defense and immigration, which fall closer in line with the ideals of limited government.
Social Security Reforms Should Focus on Promoting Individual Responsibility: In addition to securing benefits for those that are truly in need of them, reforms to Social Security should allow Millennials and all Americans the option of investing at least a portion of their payroll taxes into an Individual Retirement Account or a 401k, which tend to produce a higher rate of return over Social Security. Policies that attempt to fix Social Security by increasing taxes or expanding benefits only exacerbate the negative impacts Social Security has on the economy and thus should be avoided.
Since Millennials are the largest working generation and farthest away from receiving Social Security benefits, almost any change to Social Security will impact the Millennial Generation most. Millennials should seek the proper reforms to Social Security and must be aware of its future because it will impact their retirement and professional opportunities.