If you’re a millennial, you may be less-than-optimistic about collecting Social Security someday. Social Security’s Old Age and Survivors Insurance Trust Fund, which handles retirement and survivor benefits, is scheduled to run dry in 2033, according to the latest trustee’s report. Meanwhile, millennials — generally defined as the generation born between 1981 and 1996 — are about two decades away from collecting their first Social Security retirement checks.
Surprisingly, though, the picture isn’t entirely grim. Here are four things millennials should know about their future Social Security.
1. You can still count on most of your benefit
The scary headlines you hear about Social Security going broke aren’t entirely correct. Yes, it’s true that Social Security’s retirement trust fund will be depleted by 2033, but the vast majority of us still pay 6.2% of our paychecks to Social Security, while our employers pay an additional 6.2%. These payroll taxes are enough to fund approximately 77% of scheduled benefits.
As long as Congress doesn’t enact changes over the next decade, you could still expect to receive 77% of the Social Security benefit you’ve been promised. But many experts believe Congress will take action, such as raising the wage cap on payroll taxes or increasing the payroll-tax rate, to protect benefits for future generations.
2. Social Security won’t cover all your retirement costs
Whatever benefits you do receive someday almost certainly won’t be enough to cover retirement costs if you’re a millennial. The Social Security Administration estimates that benefits only cover about 40% of an average pre-retirement salary.
But Social Security benefits continue to lose purchasing power. In fact, The Senior Citizens League estimated in 2022 that benefits have lost about 40% of their buying power since 2022.
You can blame inflation for that, as it tends to be even rougher for seniors than it is for working-age people. That’s because costs for healthcare and housing, which eat up a disproportionate share of senior expenses, tend to rise faster than other costs.
If you’re a millennial, expect your Social Security to replace far less than 40% of your salary. Financial planners typically recommend replacing at least 70% of pre-retirement income, so saving for retirement in a workplace account, like a 401(k), or an individual retirement account (IRA) is essential.
3. You could get benefits before retirement age
Retirement benefits are what you probably think of when it comes to Social Security. But it’s also a lifeline for millions of people who haven’t reached retirement age.
A 20-year-old has about a 1 in 4 chance of becoming disabled before retirement age, in which case, they may be eligible for Social Security disability. Survivor benefits also help fill the financial void for spouses, former spouses, and children of covered workers who die.
4. You may need to work longer than your parents and grandparents
For anyone born in 1960 or later, full retirement age (the age when you’re eligible for your full benefit) is now 67. Congress gradually increased the full retirement age from 65 to 67 as part of a major Social Security reform in 1983.
But the full retirement age increase isn’t the only reason millennials should plan on working longer than their parents and grandparents did. As of 2020, a 35-year-old man could expect to live past 76, while a 35-year-old woman was projected to survive to about age 81. By comparison, someone born in 1935 — the year Social Security was established — was only expected to live into their 50s or 60s.
Increasing life expectancy means that millennials will need to fund more years in retirement than past generations. If you’re a millennial, you may need to work longer than your parents and grandparents did to build a bigger nest egg. Delaying Social Security to get a bigger benefit can also help if you find yourself behind on savings.