Why Social Security may survive longer than the government expects
Social Security might have a shot at surviving for another generation — and that’s thanks to 78.1 million individuals who will be contributing to it.
These 78.1 million individuals who come after millennials and were born after 1997 make up what is known as Generation Z.
Morgan Stanley says it is more optimistic about the impact of Generation Z than the Congressional Budget Office.
The Wall Street firm’s more bullish assessment on labor-force participation in particular means that its view of potential GDP by 2040 is above the CBO’s by 2.4% to 4.3%. Morgan Stanley says the CBO is understating potential labor force growth by between 0.2% to 0.3% per year in the 15 years through 2040.
While this may seem like a small variance, given that the continued funding of Social Security depends upon the number of people working, the variance has tremendous implications.
Currently, there are approximately 58 million beneficiaries receiving monthly Social Security payments averaging $1,249.55 . As of now, Social Security is funded through 2034, according to the Social Security Administration.
According to the Morgan Stanley report, the increase in the expected number of workers may allow Social Security to remain alive well beyond 2034.
If Morgan Stanley is right, the Social Security trust fund reserves may become depleted in 2062. It likely will delay the date of depletion for Medicare funds as well, the report said.
“Extending the deadline would likely push action off until the new depletion date, therefore removing the near- to medium-term prospects of raising the payroll tax, raising the taxable maximum to cover more or all earnings, raising the retirement age, and/or decreasing benefits,” the report says.
The Morgan Stanley report, if it’s right, also would provide a floor to stocks and interest rates over the long term.
The most obvious benefit, the firm says, is the tailwind to sales growth. “To the extent the rise of Gens Y and Z in the labor force support a higher potential GDP growth rate in the U.S., this relationship would indicate a modestly higher potential longer-run growth rate for corporate sales and earnings,” the report said.
Related video: Here's what Social Security will look like in 16 years (provided by GoBankingRates)

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