What Could Happen To Social Security When Gen X Retires?

With the silver tsunami (those born between 1946 to 1964) increasingly retiring, many might find themselves increasingly concerned about the future of Social Security. While younger generations like millennials and Gen Zers face a bleak outlook on retirement as a whole, Gen Xers are due to face their concerns more immediately. That's because the oldest members of Generation X (who were born between 1965 and 1980) are due to become eligible for retirement in 2027.

Several notable changes to Social Security throughout the years will ultimately affect Gen Xers as they enter into retirement. For starters, Gen X will be the first generation to become eligible for full retirement benefits only once they reach 67 years of age. Previous generations became eligible for full benefits at 65, with younger baby boomers being phased into full retirement at age 66. It's worth mentioning that each 12-month increase in the full retirement age translates to a ~6.5% reduction in overall benefits. While Gen Xers can technically begin claiming their benefits at age 62, there's a significant financial loss for those who choose to do so.

Worst of all, however, is that Social Security as we currently know it is running out the clock on its financial solvency. This makes the concept of retirement even more complicated for Gen Xers who might be trying to decide when to retire. With proposals ranging from raising the retirement age to raising taxes, there are many different possibilities for how Social Security might change in the next decade, adding additional stress for Gen Xers.

How Social Security is funded

Perhaps one of the most important things to understand when discussing Social Security benefits is how, exactly, Social Security is funded in the first place. Social Security is currently funded by trusts. Social Security taxes and income are deposited into these trust accounts with the express purpose of being used to pay benefits, as well as the administrative costs associated with the program. It's worth mentioning the tax income is also invested in special Treasury bonds that receive a market interest rate.

However, despite the fact these trusts have existed since January 1, 1940, they might not be around much longer. In fact, according to the Social Security Administration, these trusts will be depleted in just 13 years (in 2037, only 10 years after Gen X becomes eligible). Once this occurs, the incoming Social Security taxes people pay won't be enough to pay out the necessary benefits for everyone who will retire at that time. To be more specific, the incoming taxes will only cover approximately 76% of the currently scheduled benefits. This means congressional action and changes to funding ultimately will be required if the U.S. wants Social Security to continue providing the full benefits promised to those who are eligible.

If not, the United States could face higher retirement ages, to go along with lower benefit amounts (remember that there is a LOT to understand about just how much your benefits could end up being). Timing-wise, the potential lack of full benefits being paid out would be especially harmful for Gen Xers as they enter their full retirement ages.

The future of Social Security in the US

A major problem with solving Social Security issues is that neither side of the political aisle can agree on how best to maintain Social Security's financial solvency. A recent budget proposed by the Republican Study Committee (RSC, which represents 80% of House Republicans and 100% of House Republican leadership) included widespread benefit cuts, as well as further delaying full retirement until age 69. The proposal also included cutting disability benefits as well as eliminating Medicare's negotiating abilities when it comes to prescription drug prices, which some have argued would ensure higher costs for seniors. Ultimately, this proposal would leave about 257 million Americans working longer and for fewer benefits.

It's worth noting that Social Security (and Medicare) have been a priority for President Biden, who even made mention of the programs during his 2024 State of the Union, declaring. "If anyone here tries to cut Social Security or Medicare or raise the retirement age, I will stop them." Biden has proposed raising taxes on those earning over $400,000 a year as a way to help offset funding for the program, but no specific details have been provided as of May 2024. Biden has also specified that he views raising the retirement age as tantamount to cutting benefits and will not support it. Ultimately, Congress will either have to raise taxes, which could effectively burden millennials, Generation Z, and Generation Alpha with higher payroll taxes to pay for older generations or leave retiring members of Gen X without the full benefits they were promised.