It's no secret that your age should dictate how you invest. Younger people can hold long-term growth stocks through extreme volatility. Older investors typically can't. They usually need to start their retirement with a specific amount of money, as that stash often needs to generate a specific amount of income.
Your investments aren't the only matter to consider as you plan for your eventual retirement, however. Even though it may be years -- or even a couple of decades -- away for you, it's worth thinking about your future Social Security benefits as well. Here are four Social Security tips specifically for anyone born between 1980 and 1995, in the group otherwise known as millennials.
Plan on working until you're 67 years old
This wasn't always the case, but the Social Security Administration's so-called full retirement age for anyone born in or after 1960 is 67 years of age.
You can retire before that point, although doing so will dramatically reduce your monthly benefits. If you start taking your payments at the age of 62, for instance, your checks will be 30% less than they would have been if you'd waited. Conversely, by waiting until you're 70 years old to claim retirement benefits, your Social Security checks will be about one-fourth bigger than they would be if you retired at 67.
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Don't sweat the fact that you're rewarded for waiting a little longer to start collecting benefits than previous generations typically did. You're living a lot longer too. The average lifespan in the United States now stands at 76 years, according to data from the Centers for Disease Control. This is actually well down from a pre-COVID record high of just under 79. The contraction is specifically because of the pandemic, and the average lifespan could very plausibly start growing again in the near future.
Social Security alone won't be enough for you
Contrary to a not entirely uncommon assumption, Social Security was never meant to be anyone's sole source of retirement funds. It's only a supplemental plan to serve as a safety net of sorts for anyone who couldn't or didn't save on their own. The Social Security Administration estimates that, on average, Social Security payments are about 40% of an individual's average work-based wages.
By that same token, future Social Security payments won't fully replace your current work-based income either. You'll want to save up enough to fund the future difference on your own.
Your "gig" work can (and should) help
One of the starkest differences between millennials and baby boomers -- or even between millennials and Gen-Xers -- is how they're employed. Most folks over the age of 40 have spent most of their careers working as a hired employee of a company that offers retirement benefits. For most of the sub-40 crowd, contract-based employment like driving or online work is not only not uncommon, but relatively common.
Whether or not contractors receive yearly tax documents from their managing organizations, your gig-work money is income that's potentially subject to self-employment tax. As painful as it may be to pass along any amount of money to the IRS, that's an advantage to properly calculating and reporting your net self-employment income and paying the required tax on it. That is, not only will doing so credit your personal Social Security account (which raises your retirement benefit), your "gig" qualifies you for tax-deductible contributions to a variety of self-employment retirement accounts.
The program can be fixed
Doubts about the future of Social Security are understandable.
The most recent estimate from the Social Security Administration itself suggests that by 2035, it will be forced to reduce its payments to the tune of only 75% of their current levels. It's also a government-run program that's not exactly always been well-managed. Never even mind that the program's become something of a political football for the country's increasingly contentious leading two political parties; legislation that would fix what's broken is never actually turned into law. Who'd want to participate in such a program? Shutting the whole thing down doesn't feel entirely wrong.
The good news is, leveler heads are on the horizon. Investors -- who are also citizens and voters -- simply need to keep their eyes and ears open for these plans, policymakers, and even politicians with viable ideas to fix the program.
The encouraging irony? Raising the Social Security payroll tax rate from 12.4% of wages to 14.4% would shore up the shortfall for several decades, according to the Administration's board of trustees. Nobody wants to pay more taxes, but in this instance doing so certainly beats what could be a very destructive alternative. Or perhaps there's another, even better option that's not yet been presented.
Whatever's in the cards, know that the program's funding itself isn't too far gone to salvage. Interest in actually doing so seems to be growing. Keep pushing that boulder up the hill.
