Millennials don't have it easy when it comes to retirement savings. Many begin their careers with enormous amounts of debt, they can't rely upon the pensions that were commonplace in previous generations, and retirement is getting more expensive all the time. On top of that, Social Security's future is uncertain.
One possible scenario could result in millennials receiving almost $365,000 less from the program than they should during their lifetime. But that's not guaranteed to happen.
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We only have 12 years left to make a change
Social Security isn't on the verge of extinction, as some have suggested, but its trust funds are nearing depletion. As the baby boomers retired, far more people began signing up for Social Security than before, and there were fewer workers paying Social Security taxes. This eventually led to the program spending more money each year than it was taking in, a problem that continues today.
The latest estimates project that the trust funds, which are a key part of the program's funding, will be depleted in 2035. After this, the program will still receive money from the Social Security taxes that workers pay and the taxes that some seniors pay on their Social Security checks. But this will only be enough to pay out about 80% of scheduled benefits.
To put this in perspective, a 35-year-old millennial who earns $50,000 in 2022, claims Social Security at a full retirement age (FRA) of 67, and lives until 87 should be entitled to a little over $1.82 million from Social Security during 20 years of receiving benefits, according to a recent report by HealthView Services, a leading producer of healthcare cost-projection software.
But a 20% benefit cut would reduce that lifetime benefit to just under $1.46 million. In total, that millennial would receive about $17,370 less per year and $364,775 less over that lifetime simply because the Social Security Administration can't afford to pay the rest.
That's the reality we're all facing right now, unless something changes before 2035 -- and it might.
What could happen instead
Lawmakers are aware that Social Security's funding crisis is a pressing issue, and many have proposed solutions to increase funding for the program. Suggestions have included:
- Raising the Social Security payroll tax rate (currently, 12.4%, split evenly between employee and employer).
- Raising the full retirement age (currently between 66 and 67 for today's workers).
- Raising the cap on wages subject to Social Security taxes ($147,000 in 2022).
What ultimately happens could include some or all of these things. We don't have any way of knowing until the government changes the law, and we don't know when that will be.
What you can do in the meantime
The only thing most of us can do to influence the laws regarding Social Security is to contact our legislators and make our opinions known. But there's more we can do to help our financial security in retirement.
Do your best to make saving for retirement a priority at every age. Don't put it off, even if you can only spare a few dollars a month right now. The longer you leave your money invested, the more it'll be worth in the long run.
If you qualify for a 401(k) match, claiming this should be a top priority every year. And if you get year-end bonuses or raises, consider putting this extra cash into your retirement savings rather than spending it.
And if you're worried about Social Security cuts, you can always plan for a smaller benefit. Estimate what your benefit will be by creating a my Social Security account. Then, take 80% of this and use that figure when calculating how much you expect to get out of the program during your lifetime.
