One of the tricky parts about reforming Social Security is serving the needs of different demographic groups with seemingly disparate financial priorities.
Social Security: Women Get $354 Per Month Less Than Men – Here’s Why
With a Recession Looming: Make These 3 Retirement Moves To Stay On Track
For example, most older retired Americans must live on a fixed budget, so cutting benefits could have dire financial consequences. That’s one reason many lawmakers prefer raising Social Security revenues through higher payroll taxes rather than cutting benefits.
Meanwhile, younger working Americans already face the prospect of lower Social Security benefits when they retire thanks to the impending depletion of the Old-Age and Survivors Insurance (OASI) Trust Fund, which could reduce benefits by 20% or more within the next decade. Because of this, younger generations might not like the idea of having their current paychecks reduced by higher Social Security taxes.
Finding a happy meeting ground is one of the biggest challenges facing Social Security right now. In a recent column for The New York Times, Yuval Levin of the American Enterprise Institute said relations between the generations should be shaped by “gratitude” to the past and “solicitude” for the future.
“Gratitude should lead us to make sure that older Americans can live comfortably in retirement,” Levin wrote. “Solicitude should lead us to do so in ways that do not needlessly leave the next generation less prosperous than it could be. Those should be the terms of our debates about Social Security and Medicare.”
As things stand now, younger Americans are likely to take the brunt of any Social Security reforms — especially if their future benefits are reduced after the OASI fund is depleted. Nearly half (49%) of “early millennials” (those born during the 1980s) would lack the income they need to meet basic living expenses, Reuters reported, citing estimates by the Urban Institute. For Black and Hispanic adults in that age group, the percentage rises to 53% and 62%, respectively.
See: With A Recession Looming, Take These 3 Retirement Moves To Stay On Track
“Millennials and subsequent generations already are facing pretty uncertain retirement prospects,” Richard Johnson, a senior fellow and director of the Urban Institute’s Program on Retirement Policy, told Reuters. “They haven’t experienced the same earnings growth that previous generations did, and that has a big impact on how they will do in retirement and how much money they’ll receive from Social Security.”
A report that Johnson co-authored projects that 38% of early millennials will have inadequate income to meet their basic living needs at age 70. That compares to 39% of late Gen Xers (born between 1973 and 1979) and 28% of late baby boomers (born from 1955 to 1964). And those estimates assume that Congress finds a way to avert benefit cuts next decade.
The question is how to avert the problem — or at least minimize it — so that current retirees don’t have to take a major financial hit and future retirees still have enough money to live comfortably.
As Reuters noted, there are two basic fixes being proposed. One favored by many progressives is to raise taxes on the wealthy and expand benefits. This would likely involve raising the cap on wages subject to Social Security payroll tax — currently $160,200 — to $250,000 or more. Doing so might allow the Social Security Administration to boost rather than cut benefits.
Another fix, favored by some conservatives, is to shrink benefits for most Social Security recipients but raise them for the lowest-income seniors. A rising number of lawmakers also have proposed gradually raising the full retirement age to 70 from 67.
Others support changing the benefits formula so that Social Security payments would be reduced for middle and higher earners who might have other retirement accounts to fall back on, thus making Social Security more of a need-based program than one based on earned credits.
Take Our Poll: Do You Think Bankruptcy Is an Acceptable Way To Escape Student Loan Debt?
See: What Social Security Could Look Like in 2035
To join the fight against lower Social Security benefits, one thing younger workers can do is push back against cuts by pressuring their elected officials to bolster rather than shrink the program. This can be done by writing or calling your Congressional representatives. Social Security advocacy groups such as the National Committee to Preserve Social Security & Medicare provide additional opportunities to make your voice heard.
More From GOBankingRates