by Mitch Kokai
Senior Political Analyst, John Locke Foundation
The average 29-year-old makes only $35,000 per year. A 12.4 percent tax makes it even harder to pay rent and still make a dent in your debt. This tax is especially pernicious because of the high interest rates that Millennials face. Student-loan interest rates range from 3.4 percent to over 7 percent per year. In 2014, the average credit-card interest rate was over 15 percent.
Faced with the choice of putting a portion of his income into a retirement account with paltry returns or paying down his credit-card debt, a savvy Millennial would choose the latter. Unfortunately, Social Security forces him to do the former.
Social Security also erodes Millennials’ opportunities to save, leaving our generation with less of a safety net and forcing us to take out more debt to deal with unexpected expenses. Seventy-two percent of young adults have less than $1,000 in the bank. In this environment, an unexpected expense — for instance, a car engine that blows on the way to work — can’t be paid for and will likely need to be put on a credit card.
Social Security was intended to help Americans finance their retirements, but the data suggest that young workers would be better off doing almost anything else with that money. A report by the Urban Institute, a liberal think tank, found that workers earn a paltry rate of return on their Social Security investment. A young woman born in 1995 who starts working at 22, making $47,800 per year, will pay $466,000 into the program by the time she retires (the Urban Institute, like the Brookings Institute, assumes that the employee will pay both her share and her employer’s share). She’ll only receive $569,000 in current dollars — which means a 22.1 percent increase over 43 years. And that’s assuming that Social Security benefits don’t fall, even though funding shortages make that a real possibility.