Will Millennials Get Social Security? Yes, But It’s Time to Plan for More

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If you’re a millennial, you’ve probably heard all the noise about Social Security’s future. It’s no wonder many of us are a bit anxious about whether we’ll actually get those benefits when we retire. According to a recent survey by the Nationwide Retirement Institute, more than a third of millennials don’t expect to receive any Social Security benefits at all. But before we start spiraling, let’s break down what’s going on and how we can plan for a secure financial future.

The Skinny on Social Security

First things first: Social Security isn’t disappearing entirely. Millennials, those of us born between 1981 and 1996, will still receive some benefits. However, it’s likely to be less than what older generations are getting now. The main reason? The pool of funds is drying up. Fewer workers are paying into the system, thanks to lower birth rates and longer life expectancies. Plus, the massive baby boomer generation is retiring, which means even more money is flowing out of the system.

But don’t panic yet. Even if the reserves are projected to run out by 2033, the Social Security Administration (SSA) says ongoing income from payroll taxes should still cover about 77% of scheduled benefits. So, there will still be something in the pot, just not as much as we might hope for.

Why Age Matters

One key factor in maximizing Social Security benefits is the age at which you start collecting them. As it stands, millennials can fully retire at age 67. But if you can hold out until age 70, you’ll see a significant bump in your monthly checks. Each year you delay claiming your benefits past your full retirement age, your eventual payout increases. So, for those of us who can afford to wait, that could mean up to a 24% increase in benefits.

Calculating Your Benefits

So, how much can you expect to receive? Well, it varies based on your earnings over your career. The SSA uses your highest 35 years of income to calculate your average indexed monthly earnings (AIME), adjusting for inflation. For example, if you were born in 1981 and earned a median income, you might expect around $2,485 monthly at age 67. But if we only get 77% of that due to the fund’s shortfall, that’s roughly $1,913 monthly.

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The Reality Check

Here’s the kicker: Even at full benefits, Social Security isn’t likely to cover all your retirement costs. The cost-of-living adjustments (COLAs) haven’t kept up with real inflation, meaning our future selves will still need a solid backup plan. Financial planners often recommend saving enough to live on 80% of your pre-retirement income. This means Social Security should be a part of your retirement strategy but not the whole plan.

Smart Saving Strategies for Millennials

Given the uncertainty, it’s crucial for us millennials to be proactive about saving and investing for retirement. Here are some practical tips to get us on the right track:

Start Saving Early: Time is our biggest ally. The sooner you start saving, the better your benefits from compound interest will be. Even small, regular contributions to your retirement fund can grow significantly over time.

Use the 50/30/20 Rule: This budgeting rule is a lifesaver. Allocate 50% of your income to things you need, 30% to stuff you want to buy, and 20% to savings and any debt repayment required. It’s a simple yet effective way to manage your finances and ensure you’re consistently saving for the future.

Maximize Employer Contributions: If your employer offers a retirement plan match, make sure you’re contributing enough to get the full match. It’s essentially free money, and it can make a huge difference over time.

Utilize Tax-Free Accounts: Take advantage of tax-advantaged retirement accounts like Roth IRAs or traditional IRAs. Depending on your situation, these can help you save on taxes now or in the future.

Diversify Your Investments: Don’t put all your eggs in one basket. Spread your investments across various asset classes—stocks, bonds, real estate, etc.—to reduce risk and increase potential returns.

Pay Off Debt: High-interest debt can be a huge drag on your financial goals. Make a plan to pay it off as quickly as possible so you can focus more on saving and investing.

Freelancers and Self-Employed? No Problem

Good news for freelancers and self-employed millennials: You can still qualify for Social Security. You'll earn credits toward your benefits if you’re paying the required Social Security tax. It’s important to stay on top of this to ensure you’re covered when the time comes.

Average Savings and the Road Ahead

As of now, younger millennials have saved an average of about $30,017, while older millennials have saved up around $76,354, according to Vanguard. Not bad, but we’ve got a long way to go. Also, only about half of us have an employer-sponsored retirement account, which means the other half needs to be extra diligent with personal savings and investment strategies.

The Bottom Line

Yes, millennials will get Social Security, but it’s clear that it won’t be enough to cover all our retirement expenses. The best course of action is to start planning and saving now. By making smart financial choices today, we can ensure a more comfortable and secure retirement tomorrow. So, let’s get to it, fellow millennials! Our future selves will thank us.