According to the latest polls, more than half of millennials (21-36) think they won’t receive any social security benefits when they retire. Thirty percent of Gen-Xers (37-52) and 15% of Baby Boomers (53-72) felt the same way. They point out that for many decades, three workers paid FICA (wage tax) for each beneficiary; by 2035, this figure is expected to drop to 2.3 workers.
Last year, for the first time, the Old Age and Survivors Insurance Fund paid out more money than it received. If Congress does not act within the next 10 years, benefits would be cut by 23%. This reduction would be a disaster for the 25% of recipients who depend on Social Security for 90% of their income.
What is the probability that Congress will not act? Social Security is called the third rail of American politics. Retirees don’t look kindly on politicians who threaten their financial security.
There are solutions to this problem. Congress could:
1) increase FICA tax on income over $147,000 (the current cap)
2) subject 100% of benefits to federal income tax to increase inflows
3) raise the full retirement age from 67 to 69 to slow down exits
4) contribute money from general revenue through a loan or one-time payment (this would contribute to the national debt).
Each of these solutions or a combination of them would require political trade-offs. Unfortunately, compromise is a rare commodity in Congress today.