Their golden years aren’t looking so golden. A mere 6 percent of the so-called millennial generation think they will receive the same level of Social Security benefits as current retirees, according to a study recently released by the Pew Research Center.
It is hard to decide the appropriate reaction to this finding. On one hand, I am relieved that the vast majority of this generation understands that there is little hope Social Security will be around for their retirement — regardless of how much they pay in taxes. On the other hand, I am incredulous that 6 percent of this group still cling to the delusion that the Social Security gravy train will continue on its current path.
This generation, which entered the job market just as the economy dropped into the Great Recession, could well be the unluckiest. The already degraded outlook for millennials is made even worse by laws that shift wealth from younger to older generations, as well as the continued failure from Washington to enact the reforms necessary to keep the largest retirement safety-net programs, such as Social Security, solvent for the long term.
The millennial generation is currently between the ages of 18 and 33. According to the Pew study, they are heavily burdened by student debt and have higher levels of unemployment and poverty than the generations that preceded them.
Their income and wealth levels are also lower than was the case for the earlier generations at comparable times. This lack of economic stability drives the lower marriage rates for millennials — 26 percent compared with 36 percent for Generation X and 48 percent for the baby boomers — at the same point in their lives.
Their coming of age at the start of the Great Recession might haunt many millennials for decades. Failure to secure a job or ending up underemployed can have long-lasting impact on both income and wealth. It can take decades to make up for lost earnings.
As it is, dealing with the double whammy of shaky employment prospects and heavy student debt, an unprecedented number of millennials are returning to their parents’ homes instead of striking out on their own.
This visible burden is not the worst that millennials bear. Social Security and the obligations the system has imposed on the unsuspecting young are by far the more onerous burden. That obligation does not figure in the official debt count. This is what Boston University economist Laurence Kotlikoff calls the “fiscal gap.” Millennials have been drafted to cover some of this gap, which makes any thought of their receiving current levels of benefits hopelessly naive.
In a December 2013 study for the Mercatus Center, Mr. Kotlikoff calculated that the official estimate of public debt of $12 trillion is severely underestimated. Simply adding Social Security’s unfunded liabilities, accounting for the trust fund’s assets would increase public debt to $37 trillion — twice that of GDP, and higher than that of crisis-racked Greece. According to Mr. Kotlikoff’s calculations, the fiscal gap over the next 75 years is $205 trillion. When this bill comes due, it will not be spread evenly.
Today’s 65-year-old expects to net more than $280,000 and is adding to the fiscal gap. The unfortunate millennials and generations yet unborn are the ones who will have to redeem these obligations. Today’s 30-year-old will net $12,000, while the average 25-year-old will pay out almost $26,000. The net tax bill for future generations is an eye-popping $420,000.
This kind of transfer from a generation that is expected to have both lower income and wealth to a generation that is richer is morally indefensible. Persisting in this policy means that some future generation will be taxed at the rate of 60 percent on any transfers they receive. The current policy is unsustainable in the long run, as Mr. Kotlikoff points out.
In his recently proposed budget, President Obama declared the age of austerity over. He said this on the basis on a brief reduction in the budget deficit, even though the nonpartisan Congressional Budget Office is predicting large budget deficits and, consequently, increasing debt over the next decade.
Far more troubling, Mr. Obama abandoned the very modest proposal to change the method of calculating the way increases in Social Security payments are determined. A switch to a chained Consumer Price Index would have resulted in a very small decrease in the rate of growth of Social Security. It was certainly not fundamental reform and would not have corrected the underlying unsustainability in the program. The failure, however, signals the difficulty of reform.
Nonetheless, if Social Security is not reformed, this inequitable and unsustainable intergenerational transfer will proceed. The fiscal gap will continue to grow, and the United States will continue its slide toward bankruptcy.
Nita Ghei is the policy-research editor at the Mercatus Center at George Mason University.