A common myth about Social Security is that the program is going bankrupt and benefits won’t be paid to younger workers.

The reality is that yes, without reform, benefits may be reduced in the future, just when they become an increasingly important source of retirement income for younger generations.

Bloomberg News

In their annual report, the Trustees of the Social Security Administration project that without reform the OASDI trust funds will be depleted by 2034.

At that point, the program will revert to a “pay-as-you go” system, with continuing tax revenue collected from workers covering 75% to 80% of projected benefits to retirees. Not to jump on the political bandwagon, but if a few key reforms were adopted, such as continuing to raise the full retirement age to receive benefits, raising or eliminating the wage cap for payroll taxes and/or modifying the cost-of-living adjustment factor, the trust fund reserves could be sustained for generations to come.

However, taking a conservative approach to projecting retirement needs for the younger generations following the baby boomers, here are recommendations for modifying some underlying assumptions for Social Security but not eliminating benefits entirely.

1. At full retirement age, which is 67 for workers born in 1960 and later, reduce estimated Social Security benefits by 25% starting in 2035.

2. For millennials born in about 1982 and later as well as younger generations, in addition to reducing retirement benefits by 25%, raise the full retirement age to 70 without increasing the benefits between 67 and 70. There is an 8% increase to monthly benefits each year from the full retirement age to 70.

3. Eliminate the annual cost of living adjustment for benefits or reduce the it by 50%.

According to the Social Security Administration’s annual report, “51% of the workforce in private industry has no private pension coverage” and “31% of workers report that they and/or their spouse have no savings set aside specifically for retirement.”

Social Security retirement benefits will clearly become more critical as a source of income for younger generations.

It seems politically inconceivable, even today, that the Social Security Act, which was signed into law in 1935 by President Franklin D. Roosevelt, would be repealed and the programs terminated.

Even in the absence of any meaningful reforms, which is conceivable, it is also worth noting that the SSA is a federal government agency and the 16th Amendment of the Constitution gives the power to Congress “to lay and collect taxes on incomes, from whatever source derived,” i.e., tax and spend.

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