Millions of older Americans today collect a monthly benefit from Social Security. And for many, that benefit is their primary source of income.
That's problematic, though. For average wage earners, Social Security will replace about 40% of the paychecks they collected while working. But most people aren't equipped to withstand a 60% pay cut. And so it's easy to see why so many seniors struggle financially in the absence of having savings.
But there's a bit of good news in that regard. New data from New York Life reveals that younger generations plan to rely less on Social Security once their retirement rolls around. And that means younger workers are a prime position to build savings and shore up their finances ahead of their senior years.
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A good attitude to have
Because Social Security is facing so many financial problems, many workers are worried that they won't be able to collect any benefits once their retirement begins. But thankfully, that's not what the program's Trustees are saying will happen.
The worst-case scenario right now is benefit cuts to the tune of about 20%. That's a harsh reduction, but it's not nearly the same as not being able to collect a monthly benefit at all.
But even if benefit cuts don't come to be, the reality is that retiring on Social Security alone has the potential to be quite disastrous. So it's good to see that members of Gen Z as well as millennials are far less likely to plan on supporting themselves with Social Security in retirement than Gen Xers and Baby Boomers, says New York Life.
In fact, it's great that younger generations are aware of Social Security's shortcomings, because that puts them in a solid position to build up their nest eggs ahead of retirement. Starting to save at an older age can be daunting, as it can often mean having to part with lots of money on a monthly basis to build up a solid 401(k) or IRA balance.
But younger workers have time on their side. And that means they can get away with contributing small amounts to their nest eggs over time while making a big impact.
In fact, socking away $300 a month over a 40-year period will result in a nest egg worth about $933,000 if that money is invested at an average annual 8% return, which is a bit below the stock market's average. That's a nice sum of money to kick off retirement with.
Social Security is not on the verge of going away. And younger generations can rest assured that they're likely to collect a monthly benefit from the program once they're ready to retire.
But the fact that they're not too dependent on those benefits is also a very positive thing, especially given the potential for relatively near-term benefit cuts. And while older generations may expect to be more reliant on Social Security in retirement, even Gen Xers with a good 10 to 20 years left in the workforce have a prime opportunity to build savings and avoid financial struggles later on.
