With social security, big changes are underway and they are not the welcome change.
According to the latest annual report from the Social Security Administration, the program is expected to spend more money than it generates in revenue year. For one additional context, the last time that social security spent more than it was generated was in 1982, the year before the Reagan Administration made the final major overhaul of the program. Although this net cash outflow in 2018 is estimated at only $ 1.7 billion, it still signals a big change on the interim cost model.
Where these concerns really arise is 2020 and beyond. From 2020 and every year thereafter, the net cash outflow of social insurance will increase significantly. By 2027, net outflow will reach $ 1
If you're part of Generation Z – generally considered born between the mid-1990s and mid-2000s – social security may not even be long-term radar. However, it is probably a very important source of income for your grandparents, and ultimately your parents. A Gallup poll in April found that 90% of current retirees are somewhat dependent on their social security income to make ends meet. 84% of non-retirees expect some dependency on the program when they finally retire. These numbers strongly suggest that many future generations of Americans will need social security to make ends meet when they retire.
What can today's teenagers and young adults expect from America's most important social program? Let's break the crystal ball and take a look.
Social insurance will be there for you
Undoubtedly, the biggest concern must be whether Social Security will be there for Generation Z when it retires. While Congress can never be said with absolute certainty, I can say with 99.99% confidence that I fully expect social security to make payments to eligible beneficiaries in four to five decades.
The Thesis Here's simple: Even without its excess cash, the Social Security program will not be able to go bankrupt as long as the American public continues to work and Congress does not change the primary funding mechanisms of the program. Income tax of 12.4% on income from employment provided approximately 87% of the US $ 996.6 billion that the program had earned in 2017. The taxation of social benefits added another $ 37.9 billion last year. As long as these funding mechanisms remain intact, payments to eligible beneficiaries will continue.
Social security dollars will probably not go as far as they did in the past
On the other hand, even if social security does not go bankrupt, it is very likely that Generation Z will receive less each month than their parents or grandparents receive adjusted for inflation. This is likely for two reasons:
First, it is expected that social security, as mentioned above, will fully exhaust its asset reserves by 2034. The devaluation of these funds is an indication that the current disbursement plan is unsustainable. The trustee's report has predicted the need for a flat-rate cut in benefits of up to 21% if Congress has not found a way to reduce or eliminate the estimated 13.2 trillion cash deficits between 2034 and 2092 until the last second, In order to solve the problems of social security, cutting benefits for future generations is a real possibility.
Secondly, the purchasing power of social security dollars has fallen sharply since 2000. The senior citizens' league, the purchasing power of social security income, has increased in the last 18 years Declined by 34% over the last few years. The reason? The social security inflation rate, the CPI for urban wage earners and office workers (CPI-W), makes it difficult to measure important expenditure on seniors. As a result, they will not receive reasonable cost of living adjustments from year to year, leading to a loss of purchasing power. As long as the CPI-W remains the program's inflationary measure, this purchasing power loss is likely to worsen
The full retirement age may have increased
After all, there is a fair chance that Generation Z will have to wait longer for their full retirement pension than their parents or grandparents
the average life expectancy in the US increased by about nine years. The full retirement age – the age at which you are entitled to 100% of your old-age pension, as determined in your year of birth – increased by only two years to 67 years between 1983 and 2022. As the American public lives longer, it is only logical that the retirement age increases over time.
It is worth pointing out that raising the full retirement age reduces the life insurance benefits of social insurance. Either a person waits longer for their full benefit, thereby reducing the number of years they receive a monthly check, or accepting a steeper, permanent reduction in their payoff, thereby reducing their lifelong benefit. This, coupled with a possible reduction in benefits and loss of purchasing power, could significantly reduce the impact of social security benefits until the time when Generation Z retires.
In other words, it's a colorful mix for today's teens and young adults. That's one more reason why they should do their best to lessen their future dependence on the program.