6 Things Millennials Should Know About Social Security
[Cross-posted from CBPP] Discussions of Social Security often pit younger workers against older retirees, but Social Security is actually an intergenerational compact that helps Americans of all ages — which explains its enduring popularity among all generations. There are 73 million millennials (now aged 23 to 38), most of whom are working, and they already benefit from Social Security in many ways and will continue to do so as they age.
Here’s what they should know:
- Many millennials have already benefited from Social Security. About 9 percent of millennials have received Social Security child benefits because a breadwinning parent died, became disabled, or retired, we’ve found. Those benefits lifted millions of those children out of poverty. Today, many millennials also receive benefits due to a life-changing disability or a spouse’s death, including about 360,000 disabled workers and 20,000 widowed mothers and fathers.
- Millennials will need Social Security — maybe sooner than they think. A young person starting a career today has a 1 in 3 chance of dying or becoming disabled before reaching Social Security’s full retirement age, which is rising to 67 in 2022. But many millennials don’t have adequate private life and disability insurance coverage, which Social Security provides. Roughly half of millennial households have no private life insurance coverage, our analysis of the Survey of Consumer Finances data shows. But 95 percent of workers have survivors insurance coverage from Social Security, which is equivalent to a life insurance policy worth over $725,000 in 2018 for a young worker with average earnings, a spouse, and two children, according to Social Security’s actuaries.
- Social Security will likely provide most of millennials’ income in old age. Most of today’s seniors receive most of their income from Social Security, and millennials will likely need the program even more.Millennials are much less likely than their parents to have traditional pensions, and not all of them are lucky enough to have a retirement savings plan at work, or an employer match if they do. Just a third of working millennials participate in an employer-sponsored retirement plan — while half of Generation X and baby boomers do — and their total wealth is lower than that of the previous generations at the same age. Social Security will be most millennials’ only guaranteed source of retirement income, not subject to investment risk or financial market fluctuations.
- Social Security’s intergenerational benefits help millennials achieve financial independence. Rising higher education and child care costs, combined with slower earnings growth, create more financial pressure for millennials than their parents likely experienced as young adults.In addition to the Social Security benefits they earn themselves, the program helps relieve millennials of the responsibility to support parents or other family members when they retire or become disabled, or when a breadwinner dies. Because these family members have Social Security, millennials can use their incomes to establish households, have children, pursue education, and start businesses. Social Security is especially important for families of color, who have lower earnings, less workplace pension access, and higher rates of disability and premature death, on average.
- Millennials are willing to pay more to strengthen Social Security — and the contributions required are manageable. Seven in 10millennials agree that it’s crucial to preserve Social Security, even if it means contributing more — and, like Americans of all ages, their first choice would be to lift the cap on wages subject to payroll taxes, which is now $132,900. Even if policymakers filled Social Security’s entire long-term shortfall by raising the combined 12.4 percent employee/employer payroll tax rate for all workers, it would cost a typical worker earning $50,000 another $25 per biweekly paycheck, matched by another $25 from his or her employer.
- Fixing Social Security’s finances will likely boost millennials’ confidence in the program. Millennials are famously anxious about whether Social Security will exist when they retire — which is unfounded but not surprising, since millennials have heard myths about the program’s future their entire lives. In fact, Social Security is adequately financed in the short term and faces a modest long-term shortfall of about 1 percent of gross domestic product (GDP). Policymakers should strengthen Social Security’s finances mostly by raising its revenues, because Social Security benefits are modest even though, as noted above, they comprise the principal source of income for most beneficiaries. Strengthening the program’s finances could help put these myths to rest, so millennials can feel more secure about their Social Security.