“There is no tragedy in growing old, but there is tragedy in growing old without means of support,” President Franklin Roosevelt said when touting his Social Security program to the National Conference on Economic Security in 1934. “Organizations promoting fantastic schemes have aroused hopes which cannot possibly be fulfilled.”
One could say the same about Social Security today.
Last week, the House Ways and Means Subcommittee on Social Security held a hearing on the status of the program’s trust funds—and it’s not good. According to testimony by Stephen Goss, chief actuary of the Social Security Administration, Social Security is on track to be bankrupt by 2034.
“That’s wrong and simply unacceptable,” said Subcommittee Chairman Sam Johnson, R-Texas. “Millions of Americans rely on this important program now and millions more pay in with the expectation of future benefits.”
He’s right. It’s estimated that millennials like me will pay close to $400,000 into the program during our working life. Yet, in a 2014 Pew Research poll, only 6 percent of my generation said that they “expect to receive Social Security benefits at levels enjoyed by current retirees.”
It’s a low, but realistic, expectation for a program that belongs to a bygone era.
Social Security was established in 1935, the same year Amelia Earhart became the first person to fly from Hawaii to the U.S. mainland, Babe Ruth retired from baseball, and Mickey Mouse went Technicolor. Back then, the average life expectancy was 62 years and nearly a quarter of employed Americans worked in agriculture. It was a world without IRAs or 401(k)s, where only the wealthy had true retirement savings. A world where you actually had to go to the bank to start investing, instead of just swipe right in your banking app.
The system was designed with those realities in mind. Rather than each person setting up an individual savings account, current workers would pay a little bit out of their paycheck (2 percent) to fund retirees.
In 1940, it worked; there were roughly 160 workers for every retiree.
Today, not so much: the ratio is fewer than three workers per retiree, and the payroll tax (raised 20 times during the past seven decades) is now up to 12.4 percent.
We’re paying more into the system than previous generations, but we’re going to get far less back—pretty much the world’s worst retirement plan!
And millennials know a thing or two about retirement plans.
Unlike previous generations who waited until their 30s to start saving, financially-savvy millennials start putting away money at the outset of their careers. And this pays off. “If a millennial invests $2,000 at the start of every year and it grows at an annual average of 7 percent, after 30 years, he’ll have $217,371,” explains a recent report in Investor’s Business Daily. Contrast that with the $95,470 nest egg that would result from identical investments starting 10 years later.
My generation demonstrates both the capacity and desire to plan and save for retirement but, as the payroll tax eats up more of our hard-earned income, Social Security is actually hindering our ability to do so.
Revamping the antiquated Social Security program would allow millennials to save substantially more and protect our country’s financial future.
My generation has been saddled with a head-spinning nearly $20 trillion in federal government debt. And Social Security, the single largest federal program, is a huge driver of this debt, costing nearly $929 billion in 2016, close to a quarter of every dollar the government spent.
The Peter G. Peterson Foundation warned that “If our long-term fiscal imbalance is not addressed, our future economy will be diminished, with fewer economic opportunities for individuals and families, and less fiscal flexibility to respond to future crises.”
We can’t afford to kick the can down the road any longer. Congress and the president must act now to fix Social Security and bring it into the 21st century. Common-sense reforms should keep promises to retirees who depend on the program. Yet for the future, the program should use means-testing so that benefits go to the neediest instead of to the wealthy, who today have a vast array of retirement savings options at their disposal.
Congress and the president must ensure that Social Security is a safety net, not a future-killing entitlement that creates barriers to millennials’ financial success.
David Barnes is the policy director of Generation Opportunity.
If you would like to write an op-ed for the Washington Examiner, please read our guidelines on submissions here.
