In the 1930s, the average retirement age was 70. Life expectancy was 61.

Old folks were dying at their proverbial desks due to poor working conditions, health problems, and a struggling economy. Those that did reach retirement lived for about 2 more years on average.

After the Great Depression cleaned out the life savings of millions of Americans, this problem was primed to exacerbate. The FDR administration was terrified of the likely possibility of people passing the working age without the means to die with dignity.

This was a desperate, dire problem created by macroeconomic factors outside the control of the affected individuals. For many, the dream of retirement had been ripped away by the stock market crash. Nest eggs were gone and old folks did not have the time to recoup their losses.

President Franklin D. Roosevelt had a plan—a plan considered at the time to be wildly controversial. He wanted to take a small percentage from every worker’s paycheck and redistribute that money to seniors who were devastated by the Great Depression. After plenty of discussion, Congress agreed on a method.

The Social Security Act was signed into law in 1935. One percent of paychecks would be taken from both employer and employee to provide retirees with money to survive. At the time, these retirees made up about 4% of the total population.

This plan worked. Folks who were suffering got enough every month to pay for bills and sustain their lives. They were not living in luxury, but the mission of allowing a deep breath after a life well lived was achieved.

However, this program made a fatal error. Those who paid into the Social Security program — the current workers — were told they would see some benefits as well. So in 1940, less than two years from WWII, monthly Social Security benefits began. If you had paid into the system, you received a check in the mail.

This created a financial loop. If the expectation is that if you pay you get the benefit, the program never ends. In order to keep it running, you need people to pay in. To have public support, you need to give the people who paid the benefit.

This would not be an issue if life expectancy was flat, but it is not. Life expectancy exploded. Keep in mind that this program is not just for those who need retirement income in order to survive — it is every single American who is age 65 or older and paid into the system.

Life expectancy has increased by about 22 years since the 1940s.

This change has moved the number of retirees from 1 out of every 25 people to 1 out of every 6 people.

From an economic standpoint, this means that in 1940, 25 working people supported the cost of living for 1 retiree. Adjusted for inflation, this resulted in an economic burden of $480 per working individual. This seemed like an incredibly worthy sacrifice.

The program was a compassionate one—a moral one. But it was not built to endure.

The conditions have drastically changed.

With the average Social Security check being about $2,000 now, over the course of those years, each working individual will contribute $100,000 to the retiree. This is an economic burden increase of 208.3× per working individual.

We have gone from Social Security tax costing the worker $240 per year to $4,000 on average per year. These numbers are inflation-adjusted.

If the worker were to instead contribute the money to their own retirement, that $100K could be worth close to $1,000,000 by the time they retire. Instead of individuals investing in their own retirement, we are forced to pay for the retirement of others. The money doesn’t compound or grow in the market—it just passes from the working class to the retirement class.

When it is the current working class’s time to retire, they will again take money from the working class.

This system robs the young of the chance to save and build real wealth for retirement.

A program that pushed workers to save for themselves would be far more beneficial than the current system of wealth redistribution. Not only would it result in vastly higher amounts of retirement savings, it would keep people from being dependent on the government for their livelihood. It would prevent mass poverty in the case of a Social Security collapse.

I am not advocating for a complete dismantling of the system, but it has to evolve with our current circumstances.

The hard truth is that the government is really bad at spending money that improves people’s lives. Check this out:

Government spending on per capita standard of living has jumped dramatically:

This would be a wonderful thing, if it worked.

But it’s not working—over that same period of time, poverty rates have remained relatively flat.

More money spent is not resulting in better outcomes for the American public.

Keep in mind that while we may not see this taken directly out of paychecks, it is being taken all the same. Inflation, debt, and taxes are squeezing the working class—forcing us to support the retirement of others instead of saving for our own.

I cannot express strongly enough that if that same $4,000 a year was invested when we started in the workforce at 22 into our own retirement fund—it would be worth over $1,000,000 at the age of 65.

Instead, it never has the chance to grow.

This will continue to increase as life expectancy grows. As the percentage of retirees increases, so will the economic burden of the working class.

All of this data leads me to an uncomfortable truth:

Social security is not sustainable.

In concept, it is a wonderful program that helps millions of people navigate old age, but it won’t last forever if the system does not change.

Moving large amounts of wealth from the working class to the retired is a system that, without revision, will inevitably collapse.

The system must change. All is not lost, and retirement is still a possibility for the younger generations.

Here is how we might fix our broken system.

There are changes that can be made to mitigate this collapse. None of them are particularly attractive, and all will require sacrifices.

This is a painful conversation, but it is one that needs to be had.

Here are the current “solutions” being proposed at the government level.

This is a tough sell. If benefits are rolled back, they are rolled back on people who have already paid into the system. There will be suffering as a consequence.

In fact—this was tested quite recently.

In 2023, the French changed the retirement age from 62 to 64, meaning that citizens could not receive benefits for an additional two years.

From the economic perspective, it makes sense. People are living longer, retirement is lasting longer, and the country cannot afford to keep paying them for years and years.

Increasing the retirement age by 2 years actually benefits the system by 4 years per worker: two additional years of a worker paying into the system, and two fewer years of receiving those benefits.

On paper, this is a slam dunk. Handshakes all around.

They passed the law.

The workers set France on fire.

Changing people’s expectations for the rest of their life is never going to go over well. When that change is two additional years of work, you have a riot.

There are other ways of rolling back benefits, but none are as directly impactful.

Another possible solution is reducing the amount paid to beneficiaries. This has the glaring issue of current social security income not being enough to live off. An additional slashing of benefits doesn’t just make people tighten their belt—people would die. Retirees would be forced back into work, and the positive impact on the system overall would be minimal.

Taking income from those who depend on it is a bad idea. It doesn’t make a huge impact and is cruel.

By removing income, you are not adding more money to the social security pool, and you are slowing economic growth in areas where seniors live due to reduced spending power in the area.

If rolling back benefits is on the table, changing the age of retirement is the best path forward.

To be clear, this isn’t “fair” but may be necessary.

As it stands, everyone in the United States can receive benefits when they turn 65. Rich or poor, if you have paid into this program, you can reap the rewards.

An income-based cap could be placed on receivership. This would reduce the total number of people enrolled, cutting costs of the program. Good idea, maybe? Well, maybe not.

Income does not equal savings. Pulling the rug out, especially for those close to retirement, could throw a wrench in carefully constructed retirement plans.

If this were to be implemented, it would have to be done for the people who are currently entering the workforce. We would see no economic benefit for 45 years, and the system does not have that much life left.

The big issue is that money contributed to Social Security never has a chance to grow. It is not being invested; it is just being reallocated. This results in massive opportunity cost for the working class trying to save for retirement.

It costs the government $22,000 a year per retiree on average.

Imagine if instead we put $22,000 in the account of every newborn baby. This is significantly cheaper (one payment of $22k per individual instead of $22k a year). With a typical 8% growth rate, that money in the market would be worth $3.3 million dollars.

The glaring issue here is that this would mean spending more on Social Security now without seeing the benefit for 65 years. Switching to this method entirely would abandon everyone currently in the system now or depending on it for their impending retirement.

Both options are bleak.

This system is breaking and most likely will not be sustainable by the time Gen Z reaches retirement.

The math does not work, but the alarm bells just aren’t ringing. If we want a retirement that resembles our parents’ generation, we will have to do it ourselves.

If life expectancy increases, and inflation continues, Gen Z will need $6,000,000+ to retire wealthy. This may seem insurmountable, but it is doable if we start planning for it now.

Currently, Zoomers are the most financially troubled generation. Our circumstances have not been the best, but our habits have been even worse. The doom and gloom that permeates how we communicate about the future has led us to a sense of hopelessness.

Why save when the world is ending?

This is a lie. The world is not ending. We will one day reach retirement age and look back on our apathy towards our own futures with great regret.

If we are to overcome our generation’s financial hurdles we need to start now. No one is coming to save us. The government, the billionaires, and even the overall system, are not going to make it happen for us.

Start saving.

Open a Roth IRA.

Start a side-gig.

The 9-5 will not get it done. This is not fair, but we play the hand we are dealt.

Let’s play it well.

Not sure how much you need to save to retire? This calculator tells you how much to save per month to achieve your retirement goals: 

Thanks for reading, 
JP

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