When you're in your 20s or 30s, you probably never think of Social Security at all, and that's quite reasonable. After all, the earliest age at which you can start collecting benefits is 62 -- quite a few years away. You might, though, be making some incorrect assumptions about Social Security, and that can end up having a harmful effect on your future financial security.
In fact, per the Nationwide Retirement Institute's 2023 Social Security Survey, many young people need a Social Security reality check. Here are some key things for them to know.
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Survey says...
The survey offers interesting insights every time it's repeated. For 2023, one finding was that 70% of respondents didn't know that Social Security features inflation protection. It does so via cost-of-living adjustments (COLAs) that occur in most years. The most recent Social Security COLA, for example, was 3.2% for 2024.
That's likely a happy surprise for many, because if your income doesn't keep up with inflation, its purchasing power can be cut in half in 20 to 30 years.
Here's a less happy surprise: Social Security may not deliver as much income as you expect in retirement. According to the Center on Budget and Policy Priorities, "For someone who worked all of their adult life at average earnings and retires at age 65 in 2022, Social Security benefits replace about 37% of past earnings." The Nationwide survey, however, found respondents, on average, expecting about 47% of their preretirement income from Social Security. That's a meaningful difference.
It gets worse
Meanwhile, younger Americans are more pessimistic than older ones about future Social Security income, with 45% of Gen Z and 39% of millennials thinking they won't get a dime from Social Security -- versus 25% of Gen Xers and 10% of baby boomers thinking so.
It's actually true that all retirees in the future may end up with a fraction of what they're due from Social Security, if Congress doesn't shore up the program. But the news may not be quite as bad as some think.
Per the Social Security trustees' 2023 report on the health of the program: "The Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay 100% of total scheduled benefits until 2033. ... At that time, the fund's reserves will become depleted and continuing program income will be sufficient to pay 77% of scheduled benefits." So come 2034, beneficiaries might only be receiving 77% of the benefits due to them. That 77% is much better than "not a dime" -- but it's still a big cut. Remember that as long as there are millions of workers in America paying into the system, there will be some money with which to pay beneficiaries.
If you're starting to hyperventilate now, take a deep breath -- because Congress can fix this problem and strengthen Social Security in various ways, and it may well do so. If you're still quite concerned, contact your representatives in Washington and let them know your thoughts on the matter.
In the meantime...
Start thinking about what your retirement plan is, no matter how old you are now. Your retirement income will be very important to you, so learn more about Social Security, among other topics. Know that, for example, as of December, the average monthly Social Security retirement benefit was $1,905, or close to $23,000 for the year.
You can get a much clearer estimate of how much you can expect to collect from Social Security by setting up a my Social Security account at the Social Security website. After doing so, you'll be able to see the Social Security Administration's estimates of how much you may collect in the future, based on your earnings history and depending on various factors, such as when you start collecting.
Don't leave your future financial security up to chance. For starters, if you don't want to end up with only around 37% of your pre-retirement income, start saving and investing and thinking about setting up additional income streams.
