How Millennials Can Solve the Social Security Problem

The young person's debate on Social Security has been particularly one-sided lately. Last fall at the Harvard Institute of Politics, I helped write and analyze a poll of over 2,000 young people ages 18-29. We found that 78% of young people were concerned that the Social Security system would not be able to provide the benefits they expected when they retired.

But even more surprising was the fact that 56% of young people, if given the choice, would prefer changing the system to "invest some of their Social Security taxes in private accounts — like IRAs or 401(k)s — and running the risk that some people will lose money in their private accounts due to drops in the stock market." Breaking it down by party, 51% of self-identified young Democrats support private accounts compared with 63% of self-identified young Republicans.

Young people are worried Social Security will not be there for them and are looking for other options to ensure their future economic security. My generation doesn't want to be paying into a system from which we won't receive anything. However, many of these fears about Social Security's future may be unfounded. Social Security plays a vital role in promoting the entrepreneurship that defines the millennial generation.

This January, I attended the 24th annual conference of the National Academy of Social Insurance. The theme was Social Insurance in a Market Economy: Obstacles and Opportunities and I heard from leaders in the social insurance field talk about the future of Social Security. I was relieved.

The nonpartisan Social Security Trustees Report found that in 2010 the Social Security trust fund received $69 billion more than it paid out. In addition, the trustees reported that reserves are projected to grow to $3.7 trillion by the end of 2022.

For the next 12 years, annual surpluses are projected to grow and add excess money to the reserves. If there is no action taken by 2023 then reserves will lose money as we pay benefits for a growing number of retirees — many of whom will be our parents. If we do nothing, by 2036, payments at the current rate will be able to cover 77% of the program's scheduled benefits and administrative costs. This isn't the end of the world — and the decision on how to ensure Social Security's future will not result in the apocalypse either.

There are many ways to maintain solvency either by increasing revenue — with options such as lifting the cap on taxable earnings, which is currently set at a lower rate than it has been in the past — or by decreasing benefits, options which include raising the retirement age or reducing benefits for younger generations. NASI's report, Fixing Social Security: Adequate Benefits, Adequate Financing, describes these policy options in detail and provides information on the costs and savings associated with each alternative.

However we choose to address the long-term solvency issues of the program, it is vital that policymakers "fix" Social Security without changing the fundamental structure of the program, which pools risk widely. By transferring money to private accounts, we would tie Americans' income security to the ups and downs of the stock market.

According to a survey of 872 millennials done in November by Young Invincibles and the Kauffman Foundation, 51% of millennials "either want to start a business or already have started one." The study also found that the second most common barrier to entrepreneurship, reported by 31% of respondents, was too much risk.

NASI's conference explored how social insurance programs like Social Security provide a secure foundation for taking risks and delving into new entrepreneurial endeavors. Having a defined benefits plan like the current Social Security system provides my generation with the assurance about our future we need to be the entrepreneurs that we naturally are.

A strong Social Security system helps to provide the insurance to take risk, assuring Americans that they can retire safely regardless of how much entrepreneurial risk one takes throughout their lifetime. Shifting to a privatized system dramatically increases risk. Given the volatility of the last few years, who would be comfortable with relying on luck to determine whether we retire in the midst of a recession or a boom?

Social Security will cease to be there for us if we, as the younger generation, lose the debate by ignoring the discussion and letting other generations legislate the program away. It is our job as a generation to join the debate — and win.

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