Gen X, millennials, and Gen Z have heard for years that by the time they reach retirement age, they will not be able to depend on Social Security for financial security. After all, the beleaguered program will be depleted in about 10 years — meaning that the program will only be able to pay out about 76% of scheduled benefits for retirees from that point forward, cutting hundreds of dollars of cash to those in most need.
While that doesn’t mean that millennials retiring in the next 30 years or so won’t have any Social Security to depend on at all, it does mean that a once-promised social safety net program could be, without major tax changes, far less generous than expected. And that matters as many millions of retirees will solely depend on the fund to get by. That’s why a group of senators just introduced a bill that would bolster the program — and potentially save our retirements.
What Would The New Bill Do For Social Security Recipients?
Sens. Bernie Sanders and Elizabeth Warren, along with Reps. Jan Schakowsky and Val Hoyle, co-sponsored a new bill that would increase annual Social Security payouts by $2,400 annually per person and ensure program solvency until at least 2096.
The program would be funded by a tax increase on wealthier Americans.
As it stands, the first $162,000 of annual income is taxed for contribution to Social Security. Any money made beyond that point is not. Under Sanders’ and Warren’s plan, the income cap (“maximum taxable earnings”) would disappear, and income over $250,000 would be subject to further withholding for Social Security — a move the senators and many other progressive lawmakers — and policy experts — see as necessary to keep the system solvent.
The Social Security Act & How It Works, Explained
The Social Security Act is one of the biggest social safety nets ever established by the United States Congress. In 1935 amid the Great Depression, the act was made law as a way to permanently solve, on a federal level, economic insecurity for older folks who were no longer working or needed financial support. The program also created a social safety net fund for people with disabilities in 1956, providing payments to disabled workers older than 50 and disabled children of certain workers as well.
All workers would pay into Social Security through taxes on their paychecks as a sort of emergency retirement fund that also has the benefit of helping those who can’t make ends meet. The system has always had a maximum taxable earnings built into it, but the increase of the earnings — set by an automatic formula or by law when necessary — has not kept up with the times and growing population.
Your Social Security payments don’t actually go into your own retirement fund — they pay for the funds of people who have already retired. When we retire, our retirements will be supported by those working behind us, and so on, and so forth.
The current problem stems from a huge generation of workers (they boomed!) who are living longer and taking more money from the existing Social Security fund, while the birth rate falls and dozens of millions of baby boomers walk feet-first into retirement, putting a strain on a program that is not being replenished fast enough to last much longer.
That explains why baby boomers — the largest generation in America, amounting to 20% of the population, and who are living longer and longer than ever before — are draining the program. And it also helps explain why the reserve funds that back up the payments will be “depleted” by 2035.
But it doesn’t have to be this way. As millions more boomers head into retirement — nearly 29 million retired in 2020, and 75 million boomers total expected to retire by 2030, that fund is going to be seriously stressed. More funding by taxpayers, especially the wealthy who could give much more to the fund, could stop the the Social Security Administration from being forced to cut our legally entitled retirement benefits.
Why Does This Bill Matter — For Everyone, Not Just Boomers?
Today, 50 million Americans rely on Social Security. Almost half of them depend solely on the fund as their only source of income — an amount that comes in at around $1,800 per month. Many of those retirees will live past the period in which Social Security is “depleted,” and even more will complete retirement without the full benefits they are entitled to.
One recent survey found that baby boomers themselves, just a few years away from exiting the workforce, only have a median retirement savings of about $202,000, or what would amount to just about $8,000 a month.
Millennial and Gen Z workers younger than 35, per CNBC, only have an average of $37,211 and $6,264 saved for retirement themselves and lag far behind older generations. A recent Federal Reserve survey stated that, based on its findings, “Approximately half of Americans are at risk of not being able to maintain their pre-retirement standard of living after they stop working.”
And it’s not that workers don’t want to save. Life is expensive. Medical costs, groceries, rent and mortgages, student loans, and saving for a kid’s college fund, all with stagnant wages, have led to an affordability crisis that makes it impossible for many workers to even consider saving more to ensure the end of their lives will be comfortable — especially considering the reality that most people are urged to save about $1,000,000 for their own retirements.
Meanwhile, all of these workers are paying significantly into a federally run program that is supposed to support them through their old age — but may not be able to, unless serious changes happen.
Based on current data, the Social Security Administration estimates that benefits will be reduced starting in 2035 without Congressional intervention. That doesn’t just cut benefits for boomers — it will cut benefits for the rest of us.
That means that tens of millions of Americans who paid into the Social Security fund through taxes on their income for their entire working lives could be without a steady or significant source of income they were promised as a supplement to retirement savings and pensions. Poverty in adults older than 65 has been on the rise for years, and 6 million older adults are currently struggling to make ends meet. Working parents today could become a part of that cohort — unless action is taken.