Why younger generations can bear the brunt of social security reforms

Demonstrators take part in a May Day demonstration in Rennes, France, on May 1, 2023.

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The increase in the retirement age to 64 compared to 62 in France has sparked ongoing protests.

The United States could be ready for a similar change with the Social Security retirement age.

This change is unlikely to spark the same outcry seen in France. But some experts say younger generations should take to the streets – or at the very least take an active role in discussions about how the program could be reformed.

“No one talks about changing [current] retirement age or do anything that will affect current retirees” or near-retirees ages 55 and older, said Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center.

“It’s going to affect young people, people of working age,” he said.

Curriculum changes can ‘haunt’ young workers

Social Security will face a critical inflection point over the next decade.

The program has been structured so that worker contributions through payroll taxes largely fund the benefit income of current recipients. But with 10,000 baby boomers turning 65 every day – expected to reach 12,000 a day by 2024 – the program faces a funding crunch.

The latest projections from the Social Security Board indicate that the program’s combined fund will run out in 2034, a year earlier than expected in 2022. At that point, only 80% of benefits will be payable.

The country has already come here. In 1983, changes were passed to extend the solvency of the program, including taxes on benefits and the gradual raising of the retirement age from 65 to 67.

Today, this higher retirement age continues to be phased in gradually. People born in 1960 and later must now wait until age 67 to receive their full “retirement age” benefits.

But while lawmakers are foregoing changes that would affect near and current retirees, that largely leaves it up to younger generations to take charge of future changes to the program.

“It all comes back to haunt young people,” said Laurence Kotlikoff, a Boston University economics professor and social security expert.

It is a generational expropriation.

Laurence Kotlikoff

Professor of Economics at Boston University

How raising the retirement age could affect workers

Today, Social Security claimants get reduced retirement benefits if they start at age 62 or 100% of the benefits they’ve earned if they apply at full retirement age, which passes at age 67. But if they wait until age 70, they get 8% more per year.

For example, if you are entitled to a monthly benefit of $1,000 at full retirement age, you will only receive $700 per month if you started at age 62. Alternatively, if you wait until age 70, you’ll get about $1,240 a month, Jason Fichtner, a former Social Security Administration executive and chief economist at the Bipartisan Policy Center noted on the panel.

Raising the retirement age would further reduce benefits at age 62, for first-time claimants who may not be able to afford the wait.

Therefore, it would be necessary to consider how such a change would affect high-income claimants versus low-income claimants, Fichtner said.

“There is no free lunch here”

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Other changes could be on the table which usually include tax increases, benefit cuts or a combination of both. That could include raising the payroll tax rate — which is currently 12.4% shared equally between workers and employers — or removing the maximum wage income subject to those taxes, which is $160,200 in 2023.

If politicians find neither benefit cuts nor tax increases acceptable, they could turn to general revenue transfers, Fichtner noted.

That would add another $200 billion to $300 billion a year on top of the current national debt of $31.4 trillion, he said.

“That means you’re indebted to the next generation,” Fichtner said.

“There’s no free lunch here,” he said.

Other creative solutions could be implemented, such as a carbon tax or a financial transaction tax on stock sales, he suggested.

Social Security will probably always be there for the younger generations. However, depending on the changes, younger cohorts may bear the financial brunt, Haltzel noted.

“As we’ve seen in the past, politicians like to inflict pain not on people who are retiring now, but on people who are coming into the pipeline, and so you’re going to be firmly in the crosshairs,” Haltzel said. to Gen Z audience members.

“Please get involved and stay engaged,” she said.


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