Four out of five millennials worry that Social Security will not be there for them when they retire, according to research conducted by the Transamerica Center for Retirement Studies.
Yet most of them can’t even begin to think of saving extra income for retirement, with 22% of millennials citing paying off student loans as a top financial priority and 40% of them just getting by to cover basic living expenses. In other words, they are more likely to be focused on finding the best debt consolidation loan than investing in their 401(k).
So should millennials expect any sort of safety net from Social Security or are they right to feel uncertain about it? In its 2021 report, the Social Security Administration projected that its asset reserves for paying off benefits will become depleted in 2033. At that time, continuing tax income will be enough to pay 76% of scheduled benefits. As in, the money that comes out of your paycheck and goes towards the trust funds Social Security relies on.
Millennials are thus not unfounded in their concerns. But the picture is more nuanced, and not necessarily as bleak as Social Security disappearing altogether. It’s more likely to be reformed, especially as there is an increasingly larger gap between the amount of workers and the amount of retirees, which wasn’t the case when the trust fund model was created.
While it’s still early to know what is going to play out by the time millennials reach retirement age, one thing is for sure: They shouldn’t depend on benefits as their sole source of income.
Retirement may start later and be longer for millennials
First of all, people are living longer and planning to work later in life than they used to. Some by necessity – the need for income and access to healthcare – and some by choice, with work providing a meaningful outlet in their lives. The impact of increased longevity translates into longer careers, but also the need to plan for a longer retirement.
Millennials will want to be strategic about the right time to start receiving Social Security benefits based on these factors. In general, the more you delay receiving your monthly retirement payments, the higher it gets. As of now, you can start receiving Social Security benefits between the ages of 62 and 70.
Millennials will likely receive benefits but it won’t be enough
Wondering what those benefits will look like for millennials? Again, it’s early to tell and depends on your individual situation, but the average monthly Social Security benefit for retired workers was $1,558 in August 2021.
Factor in the rapidly increasing cost of living – Social Security benefits include an annual cost-of-living adjustment but it’s not enough to keep up with inflation – and the fact that millennials will only be accessing a percentage of monthly benefits by the time they retire, and you can do the math.
So reliance on Social Security benefits is not a foolproof plan for millennials’ retirement. Creating a retirement plan as early as possible, including personal savings and investments or a 401(k) offered by an employer, is the best bet to be able to be comfortable later in life.