Will Social Security exist for millennials and Gen Z?

By Jessica Hall

'Social Security is your money, kids. Pay attention to it.'

An infamous 1994 poll found that 46% of young Americans believed in UFOs, while just 25% thought they would receive their Social Security benefits.

Fast forward almost 30 years, and nearly three in four (74%) Americans say they aren't counting on Social Security benefits when planning retirement income, according to a recent study from Allianz Life Insurance Company of North America.

Even some financial advisers now tell young clients not to plan on Social Security being there for them as an income stream in their retirement.

Despite this fear and uncertainty, analysts said they expect Social Security will continue to exist -- in some form -- for the long term.

Read: Most Americans aren't banking on Social Security

"Social Security is part of the equation. But we can't know the future with certainty," said Rob Williams, managing director of financial planning at Charles Schwab. "Social Security was never enough even under the most ideal circumstances."

As of now, Social Security's combined trust funds will become depleted in 2034, with 80% of benefits payable at that time. That means that unless there's a fix put in place before then, retirees will see a cut to their benefits in just over a decade.

"What's the future of Social Security? I don't have a crystal ball, but 85% of people don't want Social Security to go away and those people vote," Williams said. "Prepare for what you can control. Whether it's there or not, you'll still be in better shape if you save and invest."

Other advisers were less optimistic with advice for younger adults. Vanguard's Matt Fleming, a wealth adviser executive, has said the firm has "little confidence Social Security will exist in a meaningful way" for young adults down the road.

Where does that leave today's 20-somethings?

"I find the idea of suggesting that Social Security benefits would not be available at all offensive, because these young people are working and having payroll taxes withheld," said Mary Johnson, Social Security and Medicare policy analyst for the Senior Citizens League, a think tank and advocacy group for older adults.

Even under the best of circumstances, Social Security benefits would only replace about one-third of your earnings or a little less, Johnson said.

Currently, 40% of older Americans rely solely on Social Security for their retirement income, according to the National Institute on Retirement Security.

"I've found that younger adults at age 35 find it hard to visualize saving for retirement when they are still digging out from student loan debt, and at the age when they are buying their first house," Johnson said. "However by age 55 something clicks inside and we all start thinking -- 'OMG! I've been paying Social Security taxes for 25 to 30 years and I'm not gonna let anyone take my Social Security money!'"

Johnson said she doubts younger adults will let Social Security disappear based on their social media participation and political involvement.

"Social Security is your money, kids. Pay attention to it. Feed and nurture it. It will grow," Johnson added.

Meanwhile, Teresa Ghilarducci, the Bernard L. and Irene Schwartz professor of Economics at the New School, said passion and support about Social Security tends to increase the closer people get to retirement.

"Independent polling and focus groups show that the young have always supported Social Security and the support is growing stronger. The young support Social Security, just not as strongly as recipients," Ghilarducci said. "And over time, as people get older, Social Security is front of mind and when it is front of mind -- the support is strong."

Joanna Lahey, professor at the Bush School of Government and Public service at Texas A&M University, said it's very unlikely that Social Security will cease to exist.

"There will be political will to save it -- people do care about it, voters care about it, and a lot of people depend on it -- but possibly only at the last minute, just like the last time we 'fixed' it in 1983," Lahey said. "We may not fix it in the most efficient way, or in the way that does the least amount of harm, but it will still be there for future generations."

Andrew Biggs, senior fellow with the right-leaning American Enterprise Institute, agrees that Social Security will survive.

"Here's one crucial way to think about it -- so long as we are imposing a 12% tax on every worker's wages, there is going to be a great deal of money that can be paid out in benefits. Perhaps not every penny of every retiree's full promised benefits, but pretty close," Biggs said.

"And especially for low and middle income retirees, the chances of significant benefit cuts are very, very small. The very highest earning workers might see some benefit reductions, but those are the people who depend on Social Security the least anyway, but even then, the chances that their benefits will disappear entirely are very small," Biggs said.

-Jessica Hall

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05-27-23 1021ET

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