What millennials get wrong about Social Security
Few issues unite millennials like the future of Social Security. They’re convinced it doesn’t have one.
A recent Transamerica survey found that 80% of millennials worry that Social Security won’t be around when they need it. That’s not surprising – for years, they’ve heard that Social Security is about to “run out of money.”
Social Security benefits come from two sources: taxes collected from current workers’ paychecks and a trust fund of specially issued U.S. Treasury securities. This trust fund is scheduled to be depleted in 2034, but the system will still collect hundreds of billions in payroll taxes and send out hundreds of billions in benefit checks. If Congress doesn’t intervene, the system can still pay 77% of projected benefits.
In any case, chances are good Congress will intervene, as it did in 1977 and 1983, to strengthen Social Security. Social Security is an enormously popular program with bipartisan support and influential lobbies looking out for it.
Still, millennials who believe Social Security won’t be there could make bad choices. The worst outcome would be if they didn’t save at all, convinced retirement was hopeless. But any of the following myths could cause problems.
‘I can save enough to retire even without Social Security’
Currently, the average Social Security benefit is just under $1,500 a month. You would need to save $400,000 to generate a similar amount.
And that may be underestimating the value of Social Security. The Urban Institute estimates that many averageincome single adults retiring between 2015 and 2020 will receive about $500,000 in benefits from the system while couples will receive roughly $1 million. Millennials, meanwhile, are projected to receive twice as much: about $1 million for an average-income single adult and $2 million for a couple.
A more realistic yet still cautious approach would be to assume you’ll get 70% to 80% of what your Social Security statement projects, says Bill Meyer, founder of Social Security Solutions, a software tool for Social Security claiming strategies.
“Somewhere between a 20% to 30% reduction seems like the worst-case
scenario to me,” Meyer said.
‘I can ignore my Social Security account’
Your future Social Security check will be based on your 35 highest-earning years. To get what you’re owed, however, your earnings need to be reported accurately. Fixes could be difficult decades from now, when the employer may have gone out of business and documents may be unavailable.
Millennials may be more exposed to errors than previous generations because they tend to change jobs more, Meyer says. That makes it important for them to check their earnings records, which they can do by creating an account on the Social Security Administration’s website.
‘If it’s still around, I should grab it as soon as possible’
Millions of Americans make this mistake every year, locking in reduced payments and potentially costing themselves up to $250,000 in lost benefits by claiming too early.
Currently, benefits increase by about 7% to 8% for each year you wait to apply after age 62 until benefits max out at 70.