04-05-2025
Should Gen X Really Be Worried About the State of Social Security? Experts Weigh In
Every week there seems to be new chatter about the future and fate of Social Security. For Gen Xers, who are the next in line to retire, this can cause serious anxiety about whether or not America's safety net will be there when they're ready to take it.
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Experts explained whether Gen Xers should really be worried about the state of Social Security.
There is an uncomfortable truth about Social Security that people may not like to hear, according to Krisstin Petersmarck, National Social Security Advisor (NSSA) and investment advisor representative at New Horizon Retirement Solutions.
'People think that since they paid into the system they are entitled to benefits in retirement. Unfortunately, this simply is not accurate. The money you paid into the system while you are working benefits people who are receiving their Social Security benefit.'
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Because of the structure of the current funding system for Social Security benefits, if it isn't overhauled in some way through policy moves, Petersmarck warned there is a real risk that Gen X recipients will see a reduction in their Social Security benefits.
'The largest factor affecting the Social Security system is that there are more workers leaving the workforce and claiming benefits than there are workers entering the workforce and paying into the system,' she explained.
Additionally, wage growth has not keptup with inflation in recent years, according to Sara Levy-Lambert, head of operations at Thus, less money has been coming into the program through payroll taxes.
'These pressures are exacerbated by lengthening life expectancies, which has meant that more retirees are drawing benefits for longer lengths of time,' Levy-Lambert added.
Experts disagree on the likelihood of Gen Xers getting their full benefits. Petersmarck expects that it is 'realistic' for Gen X to expect to receive their full benefits at the currently scheduled retirement age.
However, Kevin Thompson, a CFP with 91 Capital Group LLC, said, 'The reduction [in benefits] is absolutely real if there is no significant change in the current funding.' Currently, the Social Security Trust could become insolvent by 2033 or 2034, which could mean a significant reduction in Social Security benefits for beneficiaries moving forward.
The federal government could also raise the retirement age, forcing Gen Xers and those who come after them to work longer or save more.
Another possibility would be to roll back cost of living adjustments (COLAs), Levy-Lambert said. This might 'also tamp down the growth in benefits over time, particularly if inflation continues running ahead of adjustments.'
The most realistic reform to the Social Security system is raising taxes, both Petersmarck and Thompson agreed.
'A higher wage base on the taxable Social Security amount seems to be the only answer that could quickly resolve this issue,' Thompson said 'But the current administration does not seem too likely to implement that and are doing their best to take more money out of the system than they want to put into it.'
The Social Security Fairness Act is one such contributor that will inevitably take more money out of the system.
With the risk of Social Security benefits reduction, it may be a good idea to save more money now, Petersmarck said. 'Consider maxing out your 401(k) contributions, IRA contributions and investment accounts you fund with after-tax dollars.'
Try not to rely on Social Security benefits as your sole source of income in retirement, she added. Your plan should provide income from other sources where you have saved. Fortunately, the IRS has increased the amounts you can save in these various buckets so take advantage of them, she urged.
Putting your money into assets that appreciate over time — like a home, stocks or mutual funds — may also help provide a hedge against the projected deficit in Social Security benefits, according to Levy-Lambert.
'It is also a good idea for Gen Xers to stress-test financial plans as if those benefits were less after they retire. For example, planning for a buffer by tucking away some more money could offer more security if the worst happens,' she said.
If you are a Schedule C-filing business of any kind, you may have an advantage, Thompson said, because you can implement some tax-saving strategies. Consult with a tax professional to see your options, he said.
At the end of the day, the best bet is to plan for living on fewer Social Security benefits while hoping for the best.
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Sources
Krisstin Petersmarck, New Horizon Retirement Solutions
Sara Levy-Lambert,
Kevin Thompson, 9i Capital Group
This article originally appeared on Should Gen X Really Be Worried About the State of Social Security? Experts Weigh In
