The Great Recession of 2007 had a number of significant effects on Generation Y, but one of the least talked about was its effect on birth rates. Whether due to stress, financial issues or simply because it's tough to find a spouse when you live with your parents, 20- and 30-somethings just aren't making babies like they used to. In fact, according to a report released last month by the Centers for Disease Control, Millenials are currently bringing about historically low birth rates.
In contrast, pet ownership is currently at an all-time high, so it seems Generation Y has chosen a lower cost option compared to parenthood. However, this shouldn't give us any financial security when planning for retirement. While dogs and cats may provide us companionship, one thing they won't do is contribute to Social Security. And with birth rates as low as they are, there is a long-term threat to the solvency of the entire system.
Social Security has been called many things, but at its core, it's a welfare system – one in which the privileged (employees) provide assistance to the disadvantaged (retirees). At the outset of the program, this worked spectacularly well.
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In 1945, a decade after the inception of Social Security, there were 42 workers for every retiree. The expected lifespan of a 65-year-old was under 80 year. A surplus of payroll taxes built up the program's reserves, and, due to shorter life expectancy, benefits weren't typically paid out for very long.
However, the driver of the program's early success had nothing to do with the system itself. In fact, it now appears that the reasons for that early success may prove to be the system's downfall. Baby boomers started to reach full retirement age in 2012 and rode a dramatic change in demographic forces. When the last of the boomers reach full retirement age in 2031, the ratio of workers to retirees are projected to be as low as 2 to 1. The expected lifespan of a 65-year-old will likely extend past 85.
These trends are clearly unsustainable for the current Social Security system. The 2013 Social Security Report predicts reserves to be depleted in 2033. Millenials don't even begin reaching full retirement age until 2047 – possibly later if the current retirement ages continue to inch upward.
So what can Millenials expect from Social Security once it loses these reserves?
Let's revisit those birth rates.
In 1970, when boomers were reaching their prime baby-making years, U.S. women ages 15-44 averaged over 80 births per 1,000 women. By 2007, that number had fallen to 70. In 2012, the CDC reports it had plunged to 63. This is barely half of the 120 that it was in 1957 at the height of the baby boom.
Project these declines over the length of a typical career and we could be looking at a substantial shortage of employees contributing payroll taxes. And when would the unborn babies of the Great Recession have first started to reach their employment years? 2025 – just a few short years before Social Security is projected to be running out of money entirely.
This leaves Generation Y in an unenviable position. On one side is a burgeoning retiree population that is quickly depleting the Social Security reserves. On the other is a smaller pool of workers who won't be able to support the benefits we're being promised.
Back in 1983 the Social Security reserve faced a much more imminent solvency crisis. The result was a bipartisan agreement to raise the retirement age and decrease benefits (by making them taxable).
Today, however, saving Social Security may be less feasible. In 1983, baby boomers would be contributing payroll taxes on average for another 40 years. In addition, and perhaps most importantly, there was no long term projection of a decrease in workers.
Congress, both parties and the American people need to act now in order to ensure the long-term sustainability of Social Security. In fact, Generation Y is depending on it. Maybe we should remove the Wage Base or raise the retirement age again. Maybe the program should be privatized or cost-of-living adjustments constrained. Or maybe we should just start taxing our growing pet population. At the very least, they won't be looking to us for retirement benefits in their old age.
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