Gen Z May Pay More For Less In Social Security

Social Security’s long-term financial problems aren’t new, but their effects are coming into sharper focus for younger Americans. According to the latest report from the program’s trustees, the combined trust funds that support retirement and disability payments will be exhausted by 2034. After that, incoming payroll tax revenue would only cover about three-quarters of promised benefits.

That timeline may seem distant for Millennials and Gen Z, but it raises a pressing question: will they receive anything close to what earlier generations did or will they spend decades funding a program that won’t support them in return?

In 2024, the Social Security Administration paid out nearly $1.5 trillion in benefits while collecting less than $1.42 trillion in revenue. The gap has existed for years, and the result is that the trust fund is shrinking. The current path is unsustainable unless Congress makes changes.

What's Causing The Social Security Shortfall?

There are several key reasons the system is under pressure:

• Longer retirements: People are living longer, which means more years of benefit payments per person. In 1960, only 60% of men even lived to 65, and then the average benefit was claimed for 13 years. Today, 72% of men live to 65, and they claim benefits for 15 years on average.
• Lower birth rates: Fewer working-age people are contributing through payroll taxes. In 1960, there were 5.1 payers for every retiree claiming benefits. Today, it's 2.8.
• Program expansions: Recent legislative changes, including the Social Security Fairness Act, increased benefits without new funding.
• Stagnant interest income: Trust fund investments, held mainly in Treasury securities, are earning less than expected.

The demographic shift is especially significant. In the 1960s, there were five workers for every Social Security beneficiary. Today, that ratio is closer to three-to-one and falling. This creates a funding gap for future retirees.

How Can This Be Fixed?

Several proposals are on the table, but none have moved forward in a meaningful way. Each option carries trade-offs, especially for younger workers.

1. Raise Payroll Taxes

Right now, workers and employers each pay 6.2% of wages into Social Security, on earnings up to $176,100 in 2025. Increasing the FICA tax (or removing the cap entirely for high earners) would bring in more money. One option from the Trustees suggests raising the combined rate to 16.05% immediately. Waiting until 2034 would require a 4.27-point jump, to 16.67%.

This would hit younger workers the hardest. Many already face housing, student loan, and healthcare costs that earlier generations did not. An increase in payroll taxes might be necessary to keep benefits flowing, but it could come with a cost in take-home pay.

2. Raise the Full Retirement Age

The current full retirement age is 67 for those born after 1960. Some proposals suggest increasing that gradually to 69 or 70, citing longer life expectancy. That would reduce the number of years people collect benefits.

While it sounds logical, not everyone benefits equally. Workers in physically demanding jobs or those with health concerns may struggle to stay in the workforce into their late 60s. Raising the age could disproportionately hurt lower-income earners, who also tend to have shorter lifespans.

3. Cut Future Benefits or Means-Test Them

Another approach would be to reduce benefits for future retirees: either across the board or for higher-income households. While this would help preserve funds, it changes Social Security from a universal benefit into something closer to a need-based program.

There are various ways to cut future benefits, including lowering overall benefits, stopping recipients from "double-dipping" by claiming Social Security while working, or having some type of AGI or means test.

That shift could undermine public support. It might also discourage saving for retirement, since individuals who plan ahead could be penalized with reduced benefits later.

What This Means For Millennials And Gen Z

If no action is taken, younger workers may pay into a system for decades only to receive reduced benefits or nothing at all. This has sparked frustration, particularly among those juggling student debt, high rent, and stagnant wages.

For someone in their 30s today, the idea that Social Security might not be there in 2050 feels unfair. They’re contributing the same payroll taxes as older generations, but may receive much less.

A survey from the Transamerica Center for Retirement Studies found that nearly 77% of Gen X (the generation ahead of Millenaisl) don’t expect Social Security to be a major source of retirement income.

And while that belief may not be entirely accurate (some form of the program is likely to persist) it reflects a lack of confidence in government action. Every year that Congress delays, the fixes become more drastic and disruptive.

Looking Ahead

The outlook for Social Security depends on when lawmakers act. Fixes made today would be more manageable and spread out over time. But if changes are delayed until the trust fund runs out, benefit cuts or tax hikes could hit suddenly.

Millennials and Gen Z still have time to adjust, but they also have reason to push for reform now. The sad truth is that younger Americans need to prepare for the possibility that Social Security alone won’t be enough.

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