ABSTRACT
Will today’s twenty-year-olds get any Social Security benefits when they retire after 2040? According to polls, many twenty-year-olds think they won’t. They’re wrong. Below I’ll explain why they’ll get substantial Social Security benefits. But does this mean today’s twenty-year-olds shouldn’t worry about Social Security? No, they should worry. Unless something is done, after 2040 the Social Security “replacement rate” will be 15 percent lower than today; instead of receiving a benefit that is 40 percent of preretirement wage income, the benefit will be only 34 percent (6/40 = 15%). Moreover, payroll tax rates on future workers will have to be about 20 percent higher than today just to achieve this 34 percent replacement rate; the combined employee plus employer rate will have to be 15.0 percent instead of today’s 12.4 percent (2.6/12.4 = 21%). So future retirees and workers after 2040 will be unhappy with Social Security because the replacement rate will be 15 percent lower, and the payroll tax rate, 20 percent higher, than on previous generations.
