Social Security for Gen X and Gen Y

My friends and I have been lamenting the demise of Social Security for years. "It's not fair that we have to pay so much when the baby boomers are going to drain it dry," we say.  "There won't be a penny left for us."

According to CNN Money, this isn't exactly true.  Apparently, we CAN count on Social Security to be around in some capacity.  Says CNN:

"Despite what you may hear about the system going broke, the funds from workers' payroll taxes will cover all retirees' payments until 2016 even if no changes are made to the current program. After that the Social Security Administration can cover full benefits until 2037 by cashing in its Treasury bonds from the Social Security trust fund. And when the bonds run out, income from payroll taxes would be enough to cover about 75% of payments for decades.

That said, the government is looking at ways to shore up the system. President Obama has talked about imposing Social Security payroll taxes on income over $200,000 (currently, earnings over $106,800 are exempt). Other possible fixes: upping payroll taxes, raising the retirement age, and scaling back payments in some way.

The good news for anyone in or near retirement: "People 55 and over are likely to see no change or just a marginal change in benefits," says actuary Bruce Schobel, who worked on the commission headed by Alan Greenspan nearly 30 years ago that fixed the system (at least until now). But younger workers can rest assured that drastic cuts are unlikely."

Good news!

Comments

[Donnie]

That is good news. Of course, most Gen Y's will still plan their retirement without taking Social Security into account, which I think is a good thing.

[Alexandra Levit]

@Donnie: If they're planning their retirement at all, that's good news to me!

[Michael Herdegen]

"But younger workers can rest assured that drastic cuts are unlikely" is ABSOLUTELY UNTRUE.

The rub is this: "[After 2016] the Social Security Administration can cover full benefits until 2037 by cashing in its Treasury bonds from the Social Security trust fund."

But where does the money to "cash in" the bonds come from?

It either comes from general Federal tax revenues, displacing other spending, or it comes from "rolling over" the debt - which displaces other lending to the gov't for budget items.

In other words, to fund younger workers' retirement, we'll have to a) cut spending on non-retirement programs, b) raise taxes, c) reduce retirement benefits or d) increase the rate of inflation but not adjust the benefits to reflect that.

There are practical limits on how far we can go with a) or b), which means that we're probably going to get c) or d), and d) is just c) in disguise.

[Alexandra Levit]

@Michael: Thanks for the additional information. I knew there was more to the story here!

[lynnellbea]

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