If you're a millennial worried about the future solvency of Social Security, you're not alone. In fact, 77% of workers were concerned Social Security would not exist when it came time for them to retire, a recent survey found.
The good news is that the future of Social Security for millennials will likely not be as bleak as expected.
“Young people frequently ask: ‘Will Social Security be there for me?’" states Carolyn Colvin—former acting commissioner of Social Security. "I take this question very seriously, and I am sure Social Security will be there in the future.”
Although the Social Security Board of Trustees has reported that Social Security trust fund reserves will likely run out by 2034, it doesn’t mean that the program will come to an end. Once these reserves run out, people and employers will still be paying the required Social Security payroll taxes, though that money is expected to cover only 76% of expected future benefits.
In other words, if nothing changes, the amount of Social Security benefits paid out will likely be smaller, which means that a larger portion of millennials' retirement funds will need to come from sources beyond Social Security.
- In June 2020, the average monthly Social Security benefit was $1,514, and millennials can expect to receive less than this when they retire.
- Social Security benefits are losing their buying power over time because the annual cost-of-living adjustment (COLA) doesn't keep up with inflation.
- Millennials will likely be able to receive Social Security benefits but should not depend on it to cover their living expenses.
How Much Social Security Money Will I Receive?
If you're a millennial, it's still a bit early to determine exactly what Social Security benefits would be available to you and at what age you'd be able to access them.
A number of factors determine the amount of Social Security benefits you can receive, including how long you work, how much money you make each year, and the age at which you begin receiving benefits. Any future changes to related laws could also impact your benefit amount.
But if you want a number for comparison's sake, the average monthly Social Security benefit in June 2020 was $1,514. Considering this, it's safe to assume that you should not rely on Social Security entirely for your post-retirement income.
Social Security and the Cost of Living
Another reason to make sure you have another source of retirement income is to look at what has been happening the purchasing power of the money that Social Security pays out.
For example, Social Security benefits lost 33% of their buying power from 2000 to 2019, because the annual cost-of-living adjustment (COLA) to Social Security retirement benefits has not been enough to keep up with inflation.
Those who receive Social Security benefits automatically get the COLA increase in their payments. Social Security benefits increased by 1.6% in 2020 and will increase by 1.3% in 2021. The annual rate of inflation in the U.S. was 2.3% in 2019 and 1.4% in the 12 months ended in September 2020.
While Social Security may not be completely out of the picture for millennials who would someday like to retire, it isn't a foolproof plan, nor is it a means to fund one's entire retirement.
If you want to retire comfortably, then work on creating a resilient retirement plan. Determine what and how you need to save now, i.e., funding a 401(k) or IRA, so that you can retire no matter what happens with Social Security.
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