I’m a Retirement Planning Expert: Here Are 4 Reasons Gen Z Should Not Expect Social Security
Written by
Andrew Lisa
Edited by
Amber Barkley
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With the oldest among them still only 26 years old, the typical Gen Zer probably doesn’t spend much time thinking about Social Security. But it’s possible that today’s young adults could one day be the first seniors since the early 1930s to face the prospect of old age without the social safety net — and they might want to start thinking about a contingency plan.
While a lot can happen in a half-century, it’s unlikely that the program will disappear entirely, but one expert thinks that Gen Z would be wise to prepare as if it will — and he’s hardly alone. Thanks to looming financial shortfalls and an era of nearly unprecedented political dysfunction, the program is staring down a crisis.
Here’s why Gen Z should plan as if Social Security won’t be there when they need it.
One Way or the Other, It Certainly Won’t Exist in Its Current Form
Kevin Chancellor, financial advisor, certified Social Security claiming strategist and founder of Black Lab Financial Services in Melbourne, Florida, won’t commit to saying Social Security won’t be around when Gen Z is old enough to collect benefits.
“Social Security has evolved since its creation and will continue to evolve over the next few decades,” he said. “So a notion that it will go away would have to take some very large legislative steps from both political parties to accomplish. Therefore, I think financial planners who do not account for some type of Social Security in a financial plan are viewing it as a little short-sighted.”
But he’s certain that if the program still exists in 40 years, when the oldest among Gen Z are in their mid-60s and approaching retirement age, it won’t look like it does today.
Without a Change, a Crisis Is Inevitable Before the Youngest Are 25
One reason that Gen Z might have a healthy dose of skepticism regarding the future of Social Security is the dire near-term projections from the agency that administers the program.
The SSA readily acknowledges that unless Congress acts, the trusts it depends on to make payments will run dry by the mid-2030s, leaving it unable to distribute full benefits. The SSA had projected 2037 as the doomsday year, but COVID-19 and post-pandemic inflation bumped up the timeline.
“If legislative action is not implemented soon, the trust fund that funds the remainder of the normal benefits will deplete as early as 2035,” said Chancellor.
If Congress Can’t Fix It, Gen Z Will Have To Fill a 25% ‘Gap’
Gen Z should disregard the scaremongers who say Social Security will go bankrupt or become insolvent by the mid-2030s. It won’t, thanks to incoming payroll taxes. But without legislative action, the SSA will be able to pay out roughly only three-quarters of scheduled benefits by then.
“Social Security is a pay-as-you-go system, which means the earnings that individuals receive this month will go to pay the benefits for next month,” said Chancellor. “So, if the trust fund does deplete, benefit levels will still be able to pay between 70%-80% of the total benefit amount for beneficiaries.”
The SSA projects 76%. Either way, Gen Zers will have to put away roughly a quarter of the benefits they were scheduled to receive as savings between now and retirement — or learn to go without.
“Gen Z should be aware of this as they are entering the workforce and begin saving as there is a real possibility, if no legislative action is taken, that they may have to fund the ‘gap’ that a depleted trust fund would place on future benefits,” said Chancellor. “In other words, if a future benefit level for a [Gen Zer] was $3,000 per month and it is reduced by 25% because the trust fund is depleted, how much extra would that person need to have saved to fill that 25% cut to their stable income in retirement?”
The answer to that hypothetical question is $750 per month — but without Congressional action, it won’t be hypothetical for long.
Then There Are the Potential Fixes Themselves
The worst-case scenario is that Congress does nothing and lets the trusts run dry in the mid-2030s, which is unlikely, considering how popular the program is and that Congress has always acted to avert crises and maintain full benefits in the past.
But all available remedies involve tough medicine.
“For Gen Z, I don’t think Social Security is going away but will be a different version than what is currently the norm today,” said Chancellor. “There are only a few ways to truly ‘fix’ the system. Legislators can cut benefit amounts for current and future beneficiaries, increase the age limits to be able to draw benefits for younger people or increase the tax revenue to fund benefits at their current levels. Gen Z will be [affected by] a legislative shift that will either incorporate one of those strategies or a combination of them.”
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