It is official; there are currently more millennials compared with the previous largest recorded cohort — the baby boomers. The baby boomers, categorized as having been born between 1946 and 1964, are seventy-six million strong. Millennials, also known as Generation Y, were born between 1980 and 2000 and have an estimated eighty million members. This shift in demographics will lead to large changes in terms of the social, financial, and political environment going forward in the United States. The influx of current and future members of the workforce has large implications to Social Security, among many other areas. In fact, the millennials could greatly contribute to stabilizing the current Social Security system.
As the boomers transition to the next stage in their lives, a portion of their income each year will be from the Social Security benefits that they paid into their entire working careers. As the system currently stands, some of the funding of Social Security benefits is obtained through payroll taxes from both currently-employed individuals and their employers. As the millennials complete their education and transition into the workforce, there will be a huge influx of taxes paid that will help provide benefits for those who are currently collecting. Another area that is often overlooked is with regard to how long people are expected to live. As a person’s life expectancy continues to grow due to medical advancements and lifestyle changes, this will lead to more current employees who will continue their careers well into their late 60s and early 70s, not necessarily because they need to keep working, but because they enjoy what they do and want to keep working. Delaying collecting Social Security benefits and more tax revenue paid via payroll taxes could take substantial pressure off the current Social Security system.
Those boomers who have not started collecting should consider using some of the strategies available to maximize their benefits over their remaining lives. Social Security is not going anywhere and taking advantage of deferring your benefits could result in more than $100,000 of additional benefits being paid to you or your spouse over your lifetimes. Statics today show us that if a husband and wife are currently 65, there is a 50 percent chance that at least one will live to age 91 and a 25 percent chance that one will live to age 96. When I asked one of our wealth managers and partners here at Evensky & Katz / Foldes Financial, Dr. John Salter, what he is most worried about in terms of his client, he told me, “Michael, I lose sleep at night thinking not that my clients might die too early, but that they might live too long and run out of money.” Our resident Social Security expert and partner Brett Horowitz said, “Think of Social Security as an inflation-adjusted annuity that will help protect our clients against living too long. You will not be able to live on the French Rivera on your benefits, but they will help maintain your living expenses each year.” Brett often accompanies his clients to the Social Security office and helps them wade through the various options so they make the best, most well-informed choice. Social Security is one of the tools that hedge the risk of people living too long, because even if they run out of portfolio money, they will continue to get a stream of income from the federal government.
With the millennials coming of age, they, as the boomers before them, will have effects on every aspect of life in the United States. Their tax dollars will have a tremendous impact on the United States in terms of social programs, Social Security, and many other areas. With this in mind, the boomers have some choices ahead of them and how they are planning for the next stage in their lives. If you have any questions or want to know about the various Social Security strategies currently available, please click here to request more information.
Feel free to contact Michael Walsh with any questions by phone 305.448.8882 ext. 213 or email: MWalsh@ek-ff.com.