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Millennials Want Big Social Security Changes. Will They Get Them?

By Dan Caplinger - Aug 9, 2014 at 6:30PM

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Young adults don't think Social Security can survive in its current form. Is an intergenerational fight coming?

Source: Wikimedia Commons user Gphgrd01.

For almost 75 years, Social Security has paid regular monthly benefits funded by taxes collected by the program. Through the years, tax rates have increased to help provide the money necessary to pay an increasing number of Social Security recipients, but the basic structure of the program has remained much the same.

Yet amid the latest set of dour projections for Social Security, one demographic has begun to voice its own opinions about the program. It will be decades before millennials can claim retirement benefits under Social Security, but they have strong opinions about the future of the program and what must happen to ensure its survival. Some of those opinions call for major changes to Social Security as we know it, and the impact of those proposals on retirees and those close to retirement could lead to an intergenerational conflict about the program.

What millennials think about Social Security
The Reason Foundation and the Arthur N. Rupe Foundation recently studied the opinions of millennials aged 18 to 29 on a number of issues, and many of the respondents expressed significant concerns about Social Security's future. More than half of millennials surveyed said Social Security was unlikely to exist at all by the time they reach full retirement age, with only 45% believing the program will still be there when they need it.

Source: Flickr user itupictures.

Moreover, even among those who think Social Security will survive over the next 40 to 50 years, few believe the program will provide the benefits it pays to current retirees. Only about a third of millennials think they'll receive the same benefits Social Security pays now, while 64% express a lack of confidence about future payout levels.

A controversial proposed fix: private accounts
Millennials aren't alone in their doubts about the financial viability of the Social Security system over the long run, with the most recent Social Security Trustees Report stating that the program has less than 20 years left in which recipients can expect full benefits when they retire. The Trustees Report focused on working within the system to improve Social Security's financial condition, with measures including further increases in payroll taxes and various changes to future benefit calculations. Meanwhile, millennials favor more substantial changes to Social Security, including a controversial proposal to adopt private accounts for investing money that currently goes toward Social Security payroll taxes.

Source:  Flickr user itupictures.

Specifically, almost three-quarters of millennials surveyed believe Social Security should be changed to allow younger workers to use private accounts to invest the money they currently pay in Social Security taxes. By doing so, millennials hope to realize better returns than they'd receive under the existing system, all while ensuring that future changes to Social Security don't shortchange them based on the taxes they've paid.

Obviously, shifting money from the current Social Security system to private accounts would impact today's retirees, as a reduction in tax revenue going toward paying current benefits would lead to a much faster depletion of Social Security Trust Fund reserves. Yet even after the survey explicitly asked millennials about their views in light of the negative impact it would have on traditional Social Security benefits for current and future retirees, more than half still said they'd support private accounts.

Do-it-yourself Social Security
The topic of private accounts has been the subject of intense political debate, and a solution that reduces benefits for current retirees seems very unlikely to be approved. Without a major shift in political power, therefore, millennials aren't likely to get the changes to Social Security that they seek. The lesson that many millennials are learning here is that even as they continue to pay Social Security payroll taxes, they also need to set up their own private investing accounts to provide for their own future.

Unfortunately, millennials aren't generally the most comfortable with investments. According to a UBS survey, millennials have more than half their assets in cash, with just over a quarter invested in stocks. Interest rates are currently so low that cash accounts are gradually losing purchasing power to inflation, so millennials need to adjust their investing strategy if they want to make the most of their retirement savings.

In the meantime, though, people of all ages should expect continued tension between older and younger generations as the Social Security situation evolves. So long as the program remains financially endangered, Social Security will be a source of uncertainty for everyone who expects to receive benefits from it sooner or later.

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