Social Security is a critical safety net for today's American retirees, but the program's future is increasingly uncertain. What about millennials and Social Security? Gen Z and Social Security? Will younger generations enjoy the same level of benefits? 

As workforce demographics change and Social Security reform struggles to gain a footing in Congress, the program's payouts for future retirees could drop considerably. Millennials and Gen Zers must consider the implications now, long before they retire, to ensure they're set up for financial stability.

The future of Social Security is a critical component of any retirement plan, and your local credit union can provide invaluable resources and guidance as you consider your investment strategy. Read on to understand what’s ahead for Social Security, how you can advocate for change, and what you can do to prepare for retirement, regardless of what happens.

The current state of Social Security

Social Security is a federally administered insurance program designed to replace a portion of your income when you retire. It’s funded by tax contributions that every working American and business must pay. If you’re employed, you and your employer each pay 6.2% of your income into the program. If you’re self-employed, you pay the full 12.4%. After you reach the income limit — $168,600 in 2024 — you pay no further Social Security taxes for the rest of the year.

Your Social Security contributions are funneled into the Old Age and Survivors Insurance and Disability Insurance trust funds (together known as the OASDI trust funds) to pay Social Security benefits to retirees, survivors, and disabled citizens. Most Americans become eligible for benefits when they retire, but but you can also become eligible for survivor or disability benefits sooner than that. 

Generally, you must work for at least 10 years to accumulate enough credits to be eligible for Social Security retirement benefits. Your benefits are based on your highest 35 years of earnings (even if you don't work some of those years) and the age you are when you begin taking Social Security payments. To be eligible for full retirement benefits, millennials and Gen Zers must be 67 when they retire. If you retire between age 62 and 67, you'll receive a smaller monthly paycheck, but you can delay retirement as late as age 70 to receive a more considerable monthly benefit.

However, unless there is significant Social Security reform, the definition of "full benefits" could change significantly soon. Based on the latest assessment by the Social Security Board of Trustees, the OASDI trust funds are scheduled to face a shortfall after 2033. If no changes are made, Social Security benefits would drop to 80% of their current levels in 2034 and 74% in 2097, leaving many of today's workers with a much smaller safety net.

Demographic shifts and the implications

There are several reasons for the impending OASDI shortfall, but it primarily comes down to declining birth rates and increasing life expectancies over the last 50 years. As many baby boomers are set to retire and live longer during their retirement years, there are fewer young workers to replace them and continue funding the program. What was once an OASDI surplus will quickly dry up as these demographic shifts take hold.

This makes the relationship between millennials, Gen Z, and Social Security a tense one. Currently, these taxpayers fund retirement for older Americans while facing uncertainty about the future of Social Security benefits for their retirement years.

While it’s always been a wise move to start retirement planning early in your career, this is especially important for millennial and Gen Z workers. The sooner these younger Americans start investing, the better prepared they will be to absorb any shortfalls in the Social Security program.

What millennials and Gen Z need to know about Social Security

The uncertainty surrounding Social Security can lead to anxiety for many Americans, especially those who face retirement well after these shortfalls are expected to hit. The good news is that there is still time to protect yourself from any potential fallout. 

Ultimately, Social Security was always designed to be a safety net — not a complete support system for retired Americans. This safety net may be smaller for millennials or Gen Z and Social Security. Still, they're not facing an entirely different reality than Americans have faced since Social Security's inception.

The fact is, personal financial planning is still the primary factor for a successful retirement in the U.S., and you should never rely solely on Social Security for your retirement income. Younger Americans should set aside a little extra to hedge against the uncertain future of Social Security.

Potential reforms and solutions

That's not to say nothing else can be done to change the trajectory for Gen Z, millennials, and Social Security. There's still time to enact changes in the program to replace some or all of the projected shortfalls and provide a better safety net for today's young workers. 

Many U.S. senators and representatives have already proposed Social Security reforms, but it's a matter of finding policies that will gain enough traction in a sharply divided Congress. Nonetheless, polls consistently show that there is broad bipartisan support among citizens for significant updates to Social Security tax laws, including:

• Raising the Social Security payroll tax cap

• Reducing benefits for high-earning Americans

• Pushing the retirement age for full benefits back even further

• Increasing Social Security payroll taxes

Despite widespread support for such updates, the Social Security program has yet to see any significant amendments since 1983. For change to happen, it will require meaningful engagement from Americans across the political spectrum, especially younger voters who stand to bear the brunt of the impending shortfalls. If you want to rewrite the future for millennials, Gen Z, and Social Security, now is the time to reach out to your representatives and advocate for change.

Alternative retirement planning strategies

Even as you push for Social Security reform, you should pay attention to the critical work of retirement planning. Regardless of what happens with the federal program, it's best to prepare for unforeseen circumstances, from injury and illness to job loss. 

The best way to hedge against uncertainties is to start investing sooner rather than later. Interest compounds, meaning you earn interest on the interest you've already made, so the longer your money is invested, the better it is for your income prospects in retirement. That means the small things you do now to trim your spending and save a little more really can make a difference in the long run.

Retirement planning is more than simply socking money away, though. Take time to consider your income goals and retirement timeline to come up with a retirement investing strategy that makes sense. It's essential to build a diverse investment portfolio of stocks, bonds, mutual funds, and other securities — and to adjust your mix toward less risk as you get closer to retirement.

Further resources on the future of Social Security

You're not alone if you're concerned about the prospects for Gen Z or millennials and Social Security. Here are a few resources that will help you learn more about the state of the program and how to plan for your future:

• Learn about the projected shortfalls. Read the latest Social Security Board of Trustees report to understand what they’re projecting for the program if no action is taken.

• Calculate your projected Social Security income. The Social Security Administration offers a variety of tools and resources for calculating your potential benefits. 

• Contact your representatives. Find out who your Congressional representatives are so you can contact them and advocate for Social Security reform. 

Get help planning for your retirement 

There’s no denying that the future is murky for millennials, Gen Z, and Social Security — but that doesn’t mean it’s hopeless. There’s still a lot of time for reform, and young workers still have decades to plan and prepare for retirement.

If you’re looking for guidance as you chart the course for your post-work years, credit unions offer advisors with a wealth of expertise in retirement planning. Find a credit union near you, set up an account, and start your retirement planning journey.

Did you know?

Credit unions offer low fees and highly competitive rates, allowing you to save more of your hard-earned cash for retirement. Unlike large national banks, which divert profits to shareholders, credit union earnings return to their members through dividends and better rates.