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Gen X and Social Security: Will We Choose to be Cynical or Practical?

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My Gen X peers and I come by our skeptical -- okay our cynical -- world view honestly.

My childhood was bookended by 1979's energy crisis and the Three Mile Island disaster on one end and 1987's Black Monday stock market crash on the other. While Boomers experienced the triumph of a man setting foot on the moon, I was watching live on TV with my classmates as the Space Shuttle Challenger disintegrated in a plume of smoke.

As a kid in a small Midwestern town, I had one friend whose parents divorced and we thought that was odd. Halfway through my first year in college, I realized nearly all my friends had divorced parents -- I was the odd one. The fear of AIDS was so pervasive that the way we knew a relationship was serious in college was when both people got tested. College was the first time, but not the last time, I knew a family that went bankrupt. I graduated into a job market defined by waves of corporate layoffs and the idolizing of Jack Welch "Neutron Jack" style management. My young adult life began with watching the OJ Simpson verdict live on TV. I then rode the waves through the Internet boom and bust and the housing boom and bust and entered mid-life during the deepest recession in a generation.

Ah, Gen X, we are easy targets for propaganda that we can't count on Social Security to be there for us. We've learned the hard way we can't count on any institution to be there for us.

But that is dangerous thinking. Social Security will be more important to our well-being than perhaps any generation since the Great Depression, and we can play a critical role in keeping it strong.

Gen X, born 1961-81, is far worse off financially than our Boomer and Silent Generation parents. We have more debt and lower net worth than our parents did at our age. Even though more of us have two earners, flat wages combined with the skyrocketing costs of housing, healthcare and childcare mean we have less disposable income for savings than our parents did which stinks because we are more dependent on our meager savings, given that far fewer of us have pensions that pay retirement benefits for a lifetime. All of this, combined with longer life expectancies, leaves us even more dependent on Social Security benefits as a component of our retirement.

Our own finances are reason enough to want a strong Social Security system, and being in the middle of a generational sandwich further squeezes us. We are trying to save for the spiraling costs of college for our own Millennial kids, or welcoming them back home to live in the basement on our dime thanks to the current job market. Our Boomer and Silent Generation parents are living longer and had their retirement savings battered by the recession. They will lean on us for our time and our money, and be quite dependent on their own Social Security checks as part of their retirement.

While our own financial planners have told Gen X Social Security won't exist when we need it and our cynicism makes us prone to believe them, our pragmatism gives us an opportunity to prove this doomsday truism is a fabrication. Social Security has a funding challenge with practical solutions. Current estimates are that in 2033, Social Security will face a year-to-year gap. Meaning, the taxes contributed in that year will cover about 75% of benefits promised in that year. Social Security does not go belly up or go away, it simply has a financial gap that needs to be closed.

That gap, by the way, is largely a result of growing income inequality. Social Security was reformed in 1983 to gradually increase payroll taxes and the retirement age to handle the Boomer's retirement wave. And as Robert Reich has pointed out, that fix would still be working if we were still hitting its target of taxing 90% of all wages.

We've dropped below taxing 90% of wages because more people and more wages are falling above the cap on Social Security taxes today than the 1983 fix predicted. In 2012, everyone pays the same Social Security tax rate on all earnings up to $110,100 and nothing at all on any earnings over that. My husband happens to be in the 6% of earners who fall into this category and that means that sometime in the fall his paycheck goes up because he's hit the cap and he and his employer stop contributing the tax. While that's nice for our bank account, it also strikes me as an unfair tax break for higher earners and means that as income inequality has grown overall, now only 84% of wages are subject to Social Security taxes leading to the long-term funding gap.

Sensible options are not hard to find. A report from the nonpartisan National Academy on Social Insurance describes "30 options for putting Social Security's finances into 75-year balance and more than 10 ways to make Social Security more adequate for those who rely on it." We could raise the tax cap to about $180,000 to get back to covering 90% of wages, or we could remove this tax break completely so that all wages at all levels contribute, or phase in an increase to the cap, or multiple variations on this theme. All of which address this very fixable problem.

If Gen X can set aside our cynicism, embrace our strength for commonsense solutions and turn that into a political voice for a practical and equitable answer to the funding gap, this is one "disaster" we have the power to prevent.

~ Kristin Maschka


Catalyze!

Support Senator Harkin's Rebuild America Act which includes provisions to gradually increase the cap on Social Security taxes and additional provisions to strengthen benefits. Register your support on PopVox and track it on GovTrack. You can read the Social Security Administration's analysis of the bill.

Read and share these pieces on Social Security and on Gen X's finances.

Social Security also needs updating in terms of how it treats men, women and families. Read more in my post Social Security: Neutral in Name, Sexist by Design.