According to the latest polls, over half of millennials (age 21-36) believe they will not receive any Social Security benefits when they retire. Thirty percent of the Gen-Xers (age 37-52), and 15% of the Baby Boomers (age 53-72) felt the same. They point out that for many decades three workers paid to FICA (payroll tax) for every beneficiary; by 2035 the figure is expected to decline to 2.3 workers.
Last year, for the first time, the Old Age and Survivors Insurance Trust fund paid out more money than it received. If Congress fails to act in the next 10 years, benefits would be reduced by 23%. This reduction would be a disaster for the 25% of the beneficiaries who depend on Social Security for 90% of their income.
How likely is it that Congress will fail to act? Social Security is called the third rail of American politics. Retirees do not look favorably upon politicians who threaten their financial security.
There are solutions to this problem. Congress could:
1) increase the FICA tax on incomes above $147,000 (the current cap)
2) subject 100% of benefits to federal income tax to increase inflows
3) increase the full retirement age from 67 to 69 to slow outflows
4) contribute money from general revenue through a loan or a one-time payment (this would contribute to the national debt).
Any of these solutions or a combination of them would require political compromises. Unfortunately, compromise is a rare commodity in today’s Congress.