The future of retirement is looking increasingly uncertain for younger Americans, particularly those under 30, who are expressing a lack of optimism about the viability of Social Security. Many are even willing to forgo benefits altogether rather than pay more into the program now, according to a recent survey from the Cato Institute.
A Generational Divide
The survey highlights a stark generational divide in attitudes toward Social Security. Only 34% of Gen Z respondents believe the program will still be around when they retire, and 78% expect to receive reduced benefits. This generation is also far more likely—53%—to support benefit cuts over tax increases to address the program's financial issues.
In contrast, older generations, particularly baby boomers, are more inclined to protect current benefit levels, even if it means higher taxes for younger workers. A whopping 89% of respondents aged 65 and over believe benefits should be maintained, with only 6% supporting reductions for current retirees.
The Looming Social Security Crisis
With Social Security funds projected to run out by 2033, Americans face tough decisions about policy changes, tax increases, and reforms. The Social Security Board of Trustees warns that retirees will receive only 77% of their full benefits after 2033, posing significant challenges for the 70 million Americans who currently rely on the program.
Disability benefits are also at risk, with 11 million Americans depending on Social Security for support. Nearly half of these recipients rely on benefits for at least half of their family income, and 18% depend on them for nearly all of their income. Among retirees, 67% rely on Social Security for more than half of their income, with 27% depending solely on their monthly checks.
Proposed Changes to Social Security
Several proposals have been put forward to address the program's shortfalls and ensure continued benefit dispersals. The Peter G. Peterson Foundation reports that Brookings has suggested a number of changes, including:
- Increasing taxable wages: Currently, only 80% of wages are subject to Social Security taxes.
- Raising payroll taxes: A slight increase of 0.2% for all individuals.
- Increasing the full retirement age: By two years for top earners to help sustain benefits for those in greater need.
- Cutting dependent benefits: Reducing benefits for retiree spouses and children of retired parents.
Despite these proposals, no large-scale efforts have received bipartisan support from Congress, the only body capable of enacting legislative changes.
Preparing for Retirement Without Social Security
Given the uncertainty surrounding Social Security, younger Americans need to take proactive steps to secure their financial future. The Cato Institute survey found that 60% of Gen Z would oppose tax hikes if they believed they would receive less than they paid into the program, compared to 52% of today's elderly who would support such measures.
Here are some strategies to help you prepare for retirement, regardless of Social Security's fate:
Estimate Your Retirement Needs: Aim to save enough to cover 70 to 75% of your preretirement income annually.
Maximize Contributions: Contribute the maximum allowable amounts to your 401(k) and IRA. For 2026, these limits are 7,500, respectively.
Budget Wisely: Learning to live within a budget now can prepare you for the fixed income of retirement.
Diversify Investments: Spread your investments across different asset classes, such as index funds, to minimize risk and protect against market volatility.
Open a Health Savings Account (HSA): An HSA offers tax advantages and can help cover medical expenses in retirement, providing an additional layer of financial security.
By taking these steps, younger generations can better prepare for a retirement that may not have the safety net of Social Security. It's essential to start planning now to ensure financial stability and peace of mind in your later years.