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Heather Boushey

OMG Social Security!?

In retirement debate, younger workers have the most at stake

By Heather Boushey
December 29, 2010

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IF YOU watch the political debates in Washington, you’d think that the future of Social Security matters only to today’s retirees. But the Social Security’s future solvency is most germane to the 40-and-under crowd.

The President’s Deficit Commission reports that in 2037 the Social Security trust fund will be depleted. That will be an important year for me, as it happens to be the year I expect to retire. If we do nothing between now and then, retirement benefits will fall to about three-quarters of their current projected value.

This is a big deal. Today, the typical retired worker receives more than half of his or her income from Social Security. Losing a quarter of that will hurt. Proposed cuts like these have led students — students! — in Europe to take to the streets. So take heed Gen X, Gen Y, and Millennials: The retirement debate is about you.

People of my parents’ generation have this quaint thing called a “defined-benefit pension” from their employers on top of their Social Security. In retirement, they’ll get a set amount in a check each month, and it won’t fluctuate as the markets on Wall Street gyrate.

Not me. Like most workers today, I don’t have a pension. What my peers and I will have in retirement is the accumulation of a lifetime of savings in 401(k)s and individual retirement accounts; we define how much we put in, but can’t know how much we’ll have upon retirement. Only our Social Security benefits are set.

If future Social Security benefits are cut, then we all will need to start putting more into our 401(k)s and IRAs. Now. But that’s not the same as Social Security. If we do nothing, the Social Security trust fund is projected to fall into the red in a couple of decades.

Yet the reality is that millions of workers will still be paying into the system each month. The system won’t be bankrupt; it will simply need to raise a little more revenue to make future payments. As the Deficit Commission notes, in the 75 years after 2037, to keep benefits at their current projected levels, taxes would need to rise by 1.92 percent on payrolls. That’s an extra $1.92 for every $100 earned — about half as much as the latte you had this morning.

Clearly, this is a problem we need to solve, but not one that necessarily requires massive cuts in future benefits or raising the retirement age. So the question we should each ask ourselves is whether we each can save up enough to accommodate future benefit cuts — or whether it’s worth paying a bit more to know we’ll have Social Security’s guaranteed income when we retire.

Fear-mongers like to tell young people that when they get old, there won’t be as many young workers to pay into the Social Security system. But think about this: A generation ago, most women didn’t work outside the home. As a result of more women joining the labor force, we’ve seen sharp increases in the share of the adult population at work. The correct ratio isn’t workers to retirees; it’s workers to non-workers. On that count, with more women paying into the system, we are doing better.

Despite the important role Social Security plays in people’s lives today, many young workers don’t believe that Social Security will be there for them. A recent CNN/Opinion Research Poll by found that among 18-to-49 year olds, 70 percent do not believe that they will receive benefits from Social Security.

This belief is mistaken, and anyway the decision is theirs to make. Today and tomorrow’s elected officials will make the decisions about Social Security, and young workers have a lifetime of voting to affect those decisions.

We young voters have the power not just to save Social Security, but also to modernize it to meet the needs of today’s families. For instance: Most families now lack a stay-at-home caretaker. Every other developed democracy around the world has paid family and medical leave so workers can focus on care, then get back to their jobs.

Regardless, prudent retirement planning is good for each of us and for the nation. We probably all should be putting more into savings anyway, but that’s another story. What’s important in the Social Security debate is that workers under 40 need today’s leaders not to forget that this program is for us, too.

Heather Boushey is a economist with the Center for American Progress.