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What millennials get wrong about Social Security

Millennials would be wise to get up to

Millennials would be wise to get up to speed about Social Security's myths and realities. Credit: Getty Images/slobo

Few issues unite millennials like the future of Social Security. Overwhelmingly, they're convinced it doesn't have one.

A recent Transamerica survey found that 80 percent of millennials, defined in the survey as people born between 1979 and 2000, 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 percent of projected benefits.

In any case, chances are good Congress will intervene, as it did in 1977 and 1983, to strengthen Social Security's finances.

Still, millennials who believe Social Security won't be there for them could make bad choices about their retirement savings.  The following myths could cause problems.

'I can save enough to retire even without Social Security.' Good luck with that. 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.

Trying to save enough to replace 100 percent of your expected Social Security benefit might well be impossible, and could cause you to stint on other important goals such as saving for a child's education or even having a little fun once in a while.

A more realistic yet still cautious approach would be to assume you'll get 70-80 percent 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 percent to 30 percent reduction seems like the worst-case scenario to me," Meyer says.

'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, and that doesn't always happen. You can correct those errors if you catch them in time. Fixes could be difficult decades from now, when the employer may have gone out of business and needed documents may be unavailable.

"Every two to three years, you should log on and make sure that your earnings are reflected correctly," Hayes says.

Waiting may be the smartest decision

Millions of Americans make this mistake every year, locking in permanently reduced payments and potentially costing themselves up to $250,000 by claiming too early. But Congress is highly unlikely to cut benefits for those in retirement or close to retirement age, Meyer notes.

Currently, benefits increase by about 7 percent to 8 percent for each year you wait to apply after age 62 until benefits max out at 70.

Working an additional few years also can compensate for low- or no-earning years earlier in millennials' careers, when incomes may have been depressed by recession or gig work.


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