It wasn’t until the oldest boomers started turning 62 in 2008 that anyone even talked about Social Security as a potential source of income in retirement. Prior to then, everyone just assumed that the math didn’t work and that we’d have to rely on our own savings to get us through retirement.
When boomers started collecting benefits beginning in 2008—proving that the Social Security system was alive and well and paying benefits after all—the media hopped on it and now everywhere you turn you see articles on Social Security.
The downside of all this publicity is that people are starting to count on Social Security as an important source of income in retirement. And they’re worried it won’t be there for them.
“You might reassure these clients by pointing out that cutting benefits for seniors would be political suicide for any politician.”
This mind shift may seem subtle, but it’s important.
To the oldest boomers, Social Security wasn’t going to be there to begin with, so it didn’t occur to them to miss what they weren’t going to get anyway. Younger boomers and Gen-Xers have been reading and hearing about Social Security for so many years now that they have started to count on it. They are the biggest worriers that the retirement resource they’ve been counting on won’t be there for them.
Millennials, who are just starting to think about retirement, are skeptical like the early boomers. In the last 10 years or so there has been so much focus on the annual Trustees’ Reports and the dwindling of the trust funds that millennials don’t really believe Social Security will be around for them.
But millennials seem to be redefining retirement anyway. They are less entrenched in a world of continued work until some defined age like 65 after which all work stops, and more open to gig work and spurts of work followed by long vacations, with the idea of continuing this pattern for life.
While they recognize the importance of saving for the future, they are generally not saving enough thanks to high housing costs, student loan payments and a culture of dining out.
According to a study by Credit Karma, 41% of millennials have “money dysmorphia,” defined as a distorted view of one’s finances which can lead to overspending and undersaving.
When addressing the subject of Social Security solvency, I believe it’s important to consider which generation your client falls into and the expectations they might have for the role Social Security will play in their overall retirement income plan. Also consider how a client’s attitude about Social Security may affect their behavior.
Older boomers and Silents (age 70+)
Clients who had a healthy skepticism about Social Security during their working years probably accumulated a rather sizable pile of retirement assets. Now that they are enjoying the Social Security income they never thought they’d have, they may be worried it’ll be taken away. This can actually lead to underspending to the point where they are afraid to enjoy the fruits of their labors.
While we can never know for sure how Congress will deal with Social Security (a recurring theme as you’ll see below), if the worst thing that happens is that benefits are cut by 17% in 2035, they can probably deal with this. It would be roughly the same as missing out on cost-of-living adjustments between now and then. Still, you might reassure these clients by pointing out that cutting benefits for seniors would be political suicide for any politician.
Older Gen X and younger boomers (age 55 to 69)
This is the group most worried about Social Security, and rightly so.
They’ve been counting on a certain percentage of their retirement income coming from Social Security (anywhere from 20% to as much as 80%), and they may have calibrated their spending and saving patterns accordingly. The prospect of receiving as much as 20% less than they were counting on is concerning, and they don’t have a lot of time to boost their savings.
The biggest risk with this group is that they’ll do the paradoxical thing of claiming early—thus locking in a permanent reduction—instead of maximizing their benefits by claiming later.
Again, it’s not likely that Congress would jeopardize benefits for people on the brink of retirement. But if they really are worried, they should save more and claim later. In the unlikely event benefits do get cut they’ll end up with more.
Older millennials and younger Gen X (age 39 to 54)
The conversation here will focus on funding and managing their own retirement accounts to give them maximum freedom and flexibility. For some this might mean retiring early. For others it might mean a balanced life of work and play for an indeterminate amount of time.
This group might need to be reminded that their eventual Social Security benefit will depend on their earnings: The more they earn the higher their benefit will be. If they don’t believe Social Security will be around for them—well, that’s all the more reason to focus on earnings so they can put more in their retirement accounts.
These generations will largely be responsible for determining the future of Social Security depending on whom they elect to serve in Congress. Some politicians will want to preserve Social Security in its current form; others may want to revise it entirely or eliminate it in favor of something else.
Older Gen Z and younger millennials (age 22 to 38)
This group isn’t even thinking about Social Security other than to wonder why 6.2% of their paycheck is missing. Your conversations here might focus on taxes, an explanation of Social Security’s pay-as-you-go system, and how retirement accounts work to both save current taxes and build funds for the future.
Will Social Security be around when it’s their turn to collect? Maybe. There’s no question these generations will bear the brunt of shoring up Social Security if Congress delays action as the Trust Funds continue to deplete. Or they can elect politicians who will revise the system and make it into something different.
If these younger generations find that Social Security in its current form doesn’t work for the society of the future—that is, those who will be here to usher in the 22nd century—it is their right to change it.
Reference
Will Social Security Be There for Me?