While our grandparents’ generation counted on social security almost without question, times have changed, and most millennials now have their doubts. If you are a Millennial and are concerned that social security benefits may not be there waiting for you when you retire, you are not alone: according to a 2017 Annual Transamerica Retirement Survey, 80 percent of Millennials share your concern.
The Social Security Board of trustees has warned that the Social Security trust fund reserves will be depleted by 2034. However, Social Security does not simply operate off of these reserves. This is because companies and individuals are still paying their Social Security payroll taxes with every paycheck issued.
Expectations of Future Generations
Because of this continued contribution to Social Security, the Social Security Administration’s Board of Trustees projects that future retirement benefits will only be reduced by about 25 percent. This means that Millennials can anticipate receiving at least 75 percent of the benefits they would have received had they been able to retire with their parent’s generation. While this may not be ideal, it is a far cry from the total absence of Social Security benefits that many millennials have expressed concern about. Furthermore, the SSA is actively working to compensate for the depleted reserves by using other means to make up for them.
Factors to Consider
If you are a Millennial, it remains fairly difficult to calculate just how much you can expect to receive in terms of Social Security benefits. This is because there are many factors that affect these numbers, and they could change over time. A few of the factors that contribute to Social Security benefits received include: how much money you earn each year, how many years you work for, and at which age you begin receiving benefits.
Further adding to the complication is the fact that the age at which you can draw on Social Security has changed in the past, and we don’t know if it will change in the future. The amounts that are paid out each month have also changed. For these reasons, it remains important to save independently for retirement, so you are not counting on Social Security exclusively to finance your retirement.
Cost of Living Changes
One more reason to ensure that you have an additional source of retirement income is the constant changes to cost of living. Some studies show that the annual cost of living adjustments made to Social Security payments have not been sufficient to keep pace with inflation. Every year, those who receive Social Security benefits are supposed to get an increase in the amounts they receive to compensate for economic inflation. However, this does not always happen, and even when it does, it is often not equivalent to the actual inflation rate. For example, in the year 2016, Social Security recipients didn’t receive any cost of living adjustment, despite inflation of 2.1 percent in that year alone. The following year, in 2017, the inflation rate was 2.1 percent again. Therefore, between the two years, it would have required a cost of living adjustment of 4.2 percent to compensate for inflation. However, the cost of living adjustment in 2017 was a mere 0.3 percent.
Because of these failures to adjust for the cost of living properly year over year, it is extremely likely that Millennials can count on Social Security Benefits being insufficient to fund their retirements. This makes individual retirement savings in the form of 401(k) plans and traditional or Roth IRAs is even more critical. In order to have a safe and comfortable retirement, create a strong retirement plan today, and begin saving aggressively to fund it. Figure out how much to save now, along with how to invest it, so that you can have a comfortable retirement, regardless of the fluctuations in Social Security.