By Melissa Thomas, Vice President, Strategic Partnerships at Citizens Disability INTEGRATION.
Many people who are part of Generation Z (individuals born between 1995 and 2010) believe Social Security retirement benefits won’t exist when they’re ready to leave the workforce. And, they’re wrong. Chances are high that Social Security will survive for future generations — and that’s in large part thanks to the individuals who make up this generation and are contributing payroll taxes to the program.
A 2018 report from Morgan Stanley says it is more optimistic about the impact of Gen Z than the Congressional Budget Office. Its positive assessment of labor-force participation translates into a rosier view of the potential gross domestic product by 2040 (2.4 percent to 4.3 percent above the CBO). Morgan Stanley says the CBO is understating potential labor force growth by 0.2 percent to 0.3 percent per year between now and 2040.
If this analysis is accurate, the Social Security Trust Fund may not become depleted until 2062. It likely will delay the date of depletion for Medicare funds as well.
However, the most obvious benefit from millennials and Gen Z is their impact on corporate sales growth and earnings. “To the extent the rise of Gens Y and Z in the labor force supports a higher potential GDP growth rate in the U.S., this relationship would indicate a modestly higher potential longer-run growth rate for corporate sales and earnings,” the report said.
Sean Williams of The Motley Fool, like Morgan Stanley, believes Social Security Retirement is in no danger of going bankrupt, but that it’s highly likely that what Generation Z will receive each month will be less than what their parents or grandparents received on an inflation-adjusted basis.
Williams also cautions that there’s a pretty good chance that Gen Z will have to wait longer to collect their full retirement benefit than their parents or grandparents did. Since 1960, the average life expectancy in the U.S. increased by about nine years. Meanwhile, the full retirement age – the age where you become eligible to receive 100 percent of retirement benefit, as determined by your birth year – will have increased by just two years, to age 67, between 1983 and 2022. With the American public living longer, it’s only logical to expect the full retirement age to increase over time.
Concerns about Social Security’s solvency goes well beyond Gen Z. More than three-quarters of Americans are concerned Social Security will not be there for them when they are ready to retire, according to a June 2018 Transamerica survey. Another 41 percent of workers are planning to work in retirement or past age 65 because they are concerned their Social Security benefits will be less than expected.
But, in recent months, lawmakers introduced numerous bills to fix Social Security, including Connecticut Democratic Rep. John Larson’s Social Security 2100 Act. The 2100 Act would ensure Gen Z’s receipt of Social Security retirement benefits and increase Social Security benefits across the board by switching to a more accurate measure of inflation. Not surprisingly, this bill would be funded by increasing related payroll taxes.
Kathleen Romig, senior policy analyst at the Center on Budget and Policy Priorities, a progressive think tank, believes allowing Social Security’s trust funds to fall short would create massive chaos, and affect all retirees, as well as widows, children whose parents have died, and those with disabilities. “Even if it comes down to the eleventh hour, they’d fix it at the eleventh hour,” Romig said.
Gen Z workers can get an idea of how much they should expect to receive in Social Security by creating an account with the Social Security Administration.
Keep in mind that Social Security benefits are only expected to replace about 40 percent of working wages. This means Social Security should be nothing more than a Plan B in your retirement strategy, and that saving and investing should become one of your top goals during your working years.