Are Millennials Having A Hard Time with Social Security?
Most people have not saved enough for retirement. The closer they get to the end of their working years, the more obvious this becomes.
The good news is that there is a minimum of seven different bills which could help if they were to be passed by Congress. Even more amazing is that some of these bills are prompting the cooperation of both Republicans and Democrats.
Retirement Enhancement and Savings Act (RESA)
If this bill passes it would require employers to tell their employees how much their 401(k) is worth in retirement – not just how much they have currently invested in it.
The idea is that telling people how little is invested in their retirement will generate greater motive to save.
Strengthening Financial Through Short-Term Savings Act
This second bill is designed to help people handle unexpected emergencies. People could sign up at work to have some earnings placed away, tax-free. The idea is to deter people from withdrawing from their retirement accounts, which often comes with heavy penalties.
The Millennial Problem
What does this have to do with millennials? Millennials are a sizable generation in American, which were born between 1982 and 2000. Their biggest worry is that they will never see as much as 80 percent of what they are paying into social security.
The fear is well-founded. Current funding levels for SSI will officially begin paying out higher amounts than it brings in during 2021. By the year 2034 the benefits people receive will need to cut by around 23% to offset this.
How to Fix It
There are a few ways that Congress could potentially fix the problem, although none of the solutions are particularly appealing for anyone. They are, however, better than the option of paying into a fund only to be unable to withdraw your rightful amount come retirement.
The current options being thrown around Congress include:
- Lift the wage cap so all wages are taxable. As of right now, the ceiling for taxed income is $128,400.
- Raise the full retirement age (again). This is currently set at 67 but moving the full retirement marker up another year or two can help offset some of the losses.
- Increase legal immigration so there are more young workers in the country, which would increase the amount of money going towards funding social security.
What Can Be Done?
If Congress doesn’t do anything than millennials will need to plan ahead for a shortage in social security funding, which could potentially drop monthly benefit amounts drastically. Exactly what can be done will depend on your risk tolerance, income limits, and other individual factors, but a few ideas include:
- Closed-end funds – Specialized portfolio usually concentrated within a specific niche or geographical location.
- Real estate investment trusts – Investments in properties producing income or mortgages.
- Asset management and business development companies – Investing in companies who invest in small companies who are likely to grow quickly.
- Master Limited Partnerships – Investment in the production of energy, transportation, processing, etc. This can include anything which generates 90 percent of its revenue from natural resources.