You're not alone if you're a millennial who's concerned about the future of the Social Security system.
A 2019 survey by the Transamerica Center found that 77% of workers are concerned that Social Security won't exist when it comes time for them to retire. “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.”
The good news is that the outlook for the Social Security system may not be as bleak as you might think, but the amount of Social Security benefits paid out will likely be smaller if nothing changes. A larger portion of millennials' retirement funds will most likely have to come from sources other than the system.
The Social Security Board of Trustees has reported that Social Security Old-Age and Survivors Insurance Trust Fund reserves will run out by 2033. But this doesn’t mean that the program will come to an end. People and employers will still be paying the required Social Security payroll taxes when these reserves run out. But that money is expected to cover only 76% of future benefits.
- The average monthly Social Security benefit for retired workers was $1,558 in August 2021. Millennials can expect to receive less than this when they retire.
- These benefits are losing their buying power over time because the annual cost-of-living adjustment (COLA) doesn't keep up with inflation.
- Millennials will be able to receive benefits, but they should not depend on this source of income to cover all of their living expenses.
How Much Social Security Money Will I Receive?
It's still a bit early to know exactly what benefits will be available to millennials when they reach retirement age. First, it can be hard to pin down the age at which you'll be able to access them. A number of other factors also affect the amount of benefits you can receive.
These factors include how long you work, how much money you make each year, and the age at which you begin taking benefits. Any future changes to related laws could also impact your benefit amount.
The average monthly benefit for retired workers was $1,558 in August 2021. So it's safe to assume that you should not rely entirely on Social Security for your post-retirement income.
Social Security and the Cost of Living
Another reason to make sure you have at least one other source of retirement income is to look at what has been happening to the purchasing power of the money that Social Security pays out. Benefits lost 33% of their buying power from 2000 to 2019. The annual cost-of-living adjustment (COLA) to Social Security retirement benefits has not been enough to keep up with inflation.
Those who receive benefits get the COLA increase in their payments automatically. Social Security benefits increased by 1.3% in 2021; they will increase by 5.9% in 2022. The annual rate of inflation in the U.S. was 5.3% in the 12 months that ended in August 2021.
Social Security may not be completely out of the picture for millennials who would like to retire someday. But it isn't a foolproof plan. It's not a way to solely fund your retirement.
The Bottom Line
Work on creating a plan if you want to retire comfortably. Figure out how much you need to save now. Decide how you'll do it, such as by funding a 401(k) or an IRA, so you can retire no matter what happens with Social Security.