Gen Z and Sports Betting
An increasing number of Gen Z adults view sports betting as an investment strategy. However, financial experts caution that gambling winnings do not contribute to future Social Security benefits. According to a Betterment Retail Investor Survey, 52% of Gen Z respondents used investment dollars for sports betting at least once in the past year. Of these, 14% redirected their investments multiple times a month.
Comparatively, 31% of millennials have redirected investment dollars towards sports betting at least once in the past year, while only 10% of Gen X and 4% of baby boomers reported doing the same. Successful bettors may owe taxes on their winnings, but these gains do not count towards the earnings history used for Social Security retirement benefits.
“What worries me is what the betting money replaced,” Michael Ryan, finance expert and founder of MichaelRyanMoney.com, said. “If it was money that would have gone into a Roth IRA, 401(k), brokerage account, or even an emergency fund, the loss isn’t just today’s bet. It’s potentially 30 or 40 years of compounding that never happens.”
Uncertain Retirement Landscape
Experts note this shift amidst an already uncertain retirement landscape for young Americans. Social Security benefits rely heavily on a worker’s lifetime earnings record. Activities not qualifying as covered earnings can result in lower retirement funds later. Gen Z has embraced online sports betting significantly following legalization across the United States.
“That could become incredibly important, as dollars not invested in your twenties don’t just disappear today,” Alex Beene, a financial literacy instructor, remarked. “They could lose 40 or 50 years of potential growth, and research is already connecting expanded online betting with lower investment and greater debt.”
The IRS requires sports-betting gains to be reported as taxable income. However, the SSA tracks different earnings categories. Social Security benefits are based on covered wages and net earnings subject to payroll taxes. Recreational gambling winnings generally fall into neither, meaning bettors may owe taxes on large jackpots without boosting their Social Security earnings record.
“Sports betting itself isn’t going to bankrupt Social Security. However, gambling winnings don’t build a worker’s Social Security earnings record, and a generation entering retirement with inadequate private savings could depend more on a program already facing funding challenges,” Beene stated.
Illustrating the Impact of Winnings
If someone wins $100,000 from sports betting in a year, none of this counts towards Social Security benefits. However, a $100,000 salary from a traditional job would be included in the Social Security benefit formula. Since Social Security calculates benefits using a worker’s 35 highest years of covered earnings, adding such earnings could increase retirement benefits by roughly $36 to $76 per month.
Experts warn Gen Z could be significantly affected by this situation.
“Gen Z is truly at an impasse. They are dealing with structural unemployment and high living costs, which lead them to seek fast gains and higher risks,” Kevin Thompson, CEO of 9i Capital Group, commented. “The main downside is potentially less Social Security income to rely on. Many already feel Social Security won’t be there for them by retirement, so the mentality becomes: Why bother?”
Betting Becomes a Business
An important exception exists. Professional gamblers might report gambling activity as self-employment income. The IRS allows professional gamblers to file Schedule C, and the SSA may recognize earnings as self-employment income subject to Social Security taxes. Such gambling income could generate Social Security credits and future retirement benefits. Qualification depends on frequency and record-keeping.
“If Gen Z truly believes Social Security won’t be around in the future, more may start businesses combining W-2 wages with business distributions,” Thompson noted.
Financial advisers emphasize Social Security was designed around traditional employment and payroll tax contributions. While sports betting may yield a windfall, it doesn’t replace steady covered earnings in building retirement security.
Future Outlook
As sports betting becomes mainstream, retirement experts focus on how younger Americans earn and perceive money. Gen Z should understand that winning a sports bet can boost today’s bank account, but is unlikely to increase future Social Security checks.
“Social Security was never supposed to do the whole job. If younger people retire with less private savings because gambling was mentally filed under ‘investing,’ Social Security doesn’t weaken,” Ryan said. “They become more dependent on it.”