Every finance class covers saving for retirement, whether it’s through a company-provided 401k or a personal IRA, however, a recent poll found that a large chunk of millennials aren’t saving for retirement at all and that’s set to become a serious problem if it doesn’t change soon.
A GenForward poll, conducted by the Black Youth Project at the University of Chicago with the Associated Press-NORC Center for Public Affairs Research, found that 48 percent of Americans between the ages of 18 and 30 have no retirement savings. Only 7 percent of those polled had access to a traditional company-provided pension.
While the youngest of those polled were still in school, more than 40 percent of those between the ages of 25 and 30 lacked any retirement savings. This is the same generation of Americans that are less likely to see Social Security benefits in the future, especially if the age requirement continues to climb.
Just 33 percent of millennials have confidence in the Social Security system. With no retirement savings and little to no access to a traditional pension, the future looks bleak for millennials.
Asian Americans, African Americas, and white Americans held similar confidence levels, all over 50 percent, that they would be able to retire when they want. Only 43 percent of Latino Americans felt confident they would be able to retire as they pleased.
Those numbers don’t quite add up considering the Social Security and Medicare trustee’s annual report this year indicated that Social Security funds will run out by 2034 if things continue unchanged. Even if the Social Security system does change, the age to receive benefits continues to climb. Currently the age to receive full benefits is 67, up from 66 last year.
Approximately 10,000 baby boomers are able to retire each day, which will only continue to strain the system.
The Social Security Administration has stated that one of two things need to happen in order to fund the system: a modification of benefits or a modification of tax revenue. That issue will need to be addressed by 2020 in order to determine whether the system can continue its current method of operation.
“Projections of cost and income for the [Social Security] program are inherently uncertain. This uncertainty is thought to increase for more extended periods into the future,” the report states.
Believe it or not, things can actually get worse. With so many baby boomers retiring at once and many millennials lacking full-time employment, the United States Social Security system could come close to matching Japan’s disparity.
In Japan, the population receiving benefits exceeds the working population, causing a deficit in the Social Security system. In order to maintain the current benefits, consumption tax would have to increase to 80 percent. The other, more practical option is to cut Social Security benefits.
“The highest reasonable rate for the consumption tax would probably be around 20%. To meet social security expenditures with this rate, the government would have to cut spending by 30% from [$26,594] per aged person,” said a report from the Tokyo Foundation.
While the United States doesn’t have as much of a disparity between retirees and the working population, tax hikes or reduced benefits are the likely solutions in both countries.
As traditional pensions become more rare, millennials could face major economic disadvantages once it’s time to retire if they don’t start saving soon. The Social Security system is in serious trouble and, unless Congress addresses the elephant in the room, millennials could end up relying solely on their personal retirement savings to get them through their later years.
