Commentary

Young Americans and Social Security

By Abe Sutherland
September 4, 1998

The 2,500 members of the National Council of Senior Citizens cheered wildly as Rep. Patsy Mink (D-Hawaii) declared, “Social Security is not in danger.” Their signs read “Don’t pit the old against the young” and “Save the Dream, Stop the Scheme,” but many of the demonstrators gathered on the Capitol lawn in Washington, D.C., seemed uncomfortable having a 20-something in their midst. They also seemed uncomfortable with the facts.

“Social Security works,” one NCSC member insisted. “I’m living proof.” What happens in 2032, I asked, when the Social Security system is expected to enter insolvency? “I won’t be here,” he said with a shrug and a smile.

For the rest of us, of course, Social Security really is in danger. As most people know by now, changing demographics mean that fewer and fewer workers are supporting each Social Security beneficiary. And the situation is worse than official statistics suggest.

Take the fabled Social Security trust fund. Absent reform, the current pay-as-you-go system is projected to start running deficits in 2013. Not to worry, we’re told — payroll tax revenues have exceeded benefit outlays since 1983, and this accumulation of surpluses constitutes our trust fund. Not until 2032, when the trust fund is depleted, will the system really run into trouble. Sounds good, but it’s not that simple.


Despite widely reported polls that indicate that many young people don’t expect to receive any Social Security benefits when they retire, it can be hard to worry about retirement while you’re still researching career options.


The surpluses have been “invested” in government bonds. In reality, one arm of the federal government (the Social Security Administration) has lent billions of dollars to another arm of the federal government (the Treasury). In 2013, when it comes time to start redeeming those bonds in order to continue paying promised Social Security benefits, the same government that amassed “surpluses” will owe big bucks. Since the government spends every dollar it receives, the burden will fall where it always does: on the American taxpayer and on the economy. Beginning in 2013, then, we will have to raise taxes or cut benefits, or the government will go even deeper into debt. The trust fund is an illusion, an accounting sleight of hand — so you don’t have to be as young as I am to worry about your retirement future.

Still, my generation has the most to lose if the system isn’t reformed. So what are people my age saying about the future of Social Security? Unfortunately, not much. Despite widely reported polls that indicate that many young people don’t expect to receive any Social Security benefits when they retire, it can be hard to worry about retirement while you’re still researching career options. However, two days after the NCSC demonstration, we got a glimpse of what happens when young Americans do confront the issue. The result was encouraging.

More than 500 college-age Washington interns — myself among them — convened for an all-day “summit” on the future of Social Security sponsored by Americans Discuss Social Security. Surprisingly reasonable conclusions emerged from small-group discussions, Q-and-A sessions with guest lecturers and ongoing electronic polling.

First, the vast majority of interns urged prompt, decisive action. As a committee of attendees explained in a report distributed to members of Congress, “To postpone reform of the Social Security system beyond 1999 would be both fiscally irresponsible and morally reprehensible.” And, while many interns also supported such measures as raising the amount of earnings subject to the payroll tax, they concluded that “transition from an unsustainable pay-as-you-go model to an investment-based system is crucial.”

Most encouraging was the popular support of personal retirement accounts, or PRAs, the cornerstone of privatization proposals: “individual retirement accounts should be part of any reform legislation.” That endorsement of PRAs marks an important development in the debate over Social Security’s future. With the impending insolvency of the current system, the prospect of handing taxes over to the government and hoping for something in return years down the line is looking less and less defensible. With PRAs, on the other hand, workers own their contributions — and can plan for their retirement with confidence. What’s more, because they are invested in private capital markets, PRAs both feed economic growth and, over the long term, offer returns far higher than those promised under the current system.

For these reasons, more and more working Americans support PRAs. Most of today’s senior citizens are happy with what the current system has done for them, and some may never see the need for fundamental reform. But the generation now entering the workforce — many of whom have yet to choose careers, much less think about their retirement — see PRAs as a part of their long-term future.

Abe Sutherland is an intern at the Cato Institute.