Millennials are being fleeced as Washington continues to confiscate their wages to prop up the collapsing Social Security program. The Great Social Security Reckoning is on the horizon, and for several key reasons.
Millennials already know Social Security funds won’t be around for them.
Most young Americans probably missed Al Gore’s “lockbox” promises during the 2000 presidential debates, but an overwhelming 81 percent are skeptical of ever collecting Social Security benefits. It’s no secret. The Social Security Trustee’s Report of 2017 warns that the program will be insolvent by 2034, meeting only 77 percent of its obligations. That year, millennials will be in their mid-30s to mid-50s, prime years for retirement planning.
While the Social Security Administration concedes the program shouldn’t be relied upon as a sole source of retirement income, it’s immoral for Congress to do nothing, knowing young workers must pay into a system with such a dubious future.
Social Security is not an investment. It is an FDR-style transfer of wealth.
Even if the Social Security Trust Fund was still functioning as millennials reached retirement, a worker likely pays more into it than they will likely receive.
Say a 22-year-old earns a $50,000 annual salary for the next 45 years of her career, paying 12.4 percent of her annual gross wages into the program (6.2 percent from the employee, 6.2 percent employer match). Each year, that amounts to $6,200 in taxes to the government, which is redistributed to current beneficiaries. The earliest in which she can begin receiving full benefits is not until age 67 (although Congress may increase this to 70), and her annual benefit would be around $22,000.
If the worker was free to invest this same amount in a private vehicle yielding 8 percent annual growth, her nest egg would have reached around $2 million at age 67, also giving her the freedom to retire even earlier — or simply live off the interest as it continues to grow.
Since many millennials distrust the stock market in the wake of the mortgage meltdown and financial crisis, there are alternatives. Three Texas counties (Galveston, Brazoria, and Matagorda) pulled out of Social Security in 1981 and opted into the banking model-based Alternate Plan. These private accounts are conservatively invested outside the market, with a guaranteed return of 3.75 to 4 percent. Retirees under this plan are making more than twice what they would have received under Social Security.
The portion confiscated from wages are earnings which can’t be used to boost financial independence.
The “lost decade” left Generation Y mired in student loan debt with underwhelming job prospects.
Unsurprisingly, millennials aren’t buying homes like their predecessors, but thanks to auto-enrollment programs for those with jobs, they are investing. Every dollar redistributed into Social Security is a dollar those workers can’t use to pay off loans, invest, or put toward homeownership — a key step in building personal wealth.
Workers are earning less because of their employers’ share of Social Security.
There’s a familiar phrase, “Corporations don’t pay taxes, people pay taxes,” since companies just pass taxes on to customers through higher prices. Similarly, employers aren’t the ones paying Social Security taxes (6.2 percent of gross wage), the worker is paying those taxes as evidenced by his or her lower earning power. If released from this mandate, employers could essentially boost worker compensation.
Millennials are skeptical.
The younger generation’s distrust of institutions is unprecedented, with suspicion of Congress well in the lead. This digitally savvy, do-it-yourself demographic prides itself on bucking trends set by their predecessors. They want to do things their way, including how they manage and save their money.
Fortunately, 2018 is predicted (and well on its way) to be a good year for worker wages. As we climb out of the previous decade’s joblessness and student debt and into the higher earning potential and increasing job opportunities of the post-tax reform economy, it’s more important than ever for Congress to reform bankrupt entitlements. Social Security should be modernized and restructured, allowing workers to opt into robust-earning private accounts, while not harming benefits for those counting on and truly dependent on the program.
Congress, beware the coming rage as young workers refuse to tolerate the looting any longer.
Erin Humiston is director of policy communication at the Institute for Policy Innovation, an independent, nonprofit public policy organization based in Dallas. Her writing has appeared has appeared in Real Clear Markets and the Washington Examiner. She earned a degree in journalism from Liberty University in Lynchburg, Va.