Social Security: Millennials Will Need to Save $21 a Week To Make Up For Program Cuts
If all signs point to the Old-Age, Survivors, and Disability Insurance (OASDI) Trust Funds being depleted by 2035 and its beneficiaries subsequently losing out on 20% of their promised benefits, those planning on retiring around that time will need to take necessary financial measures to ensure they are comfortable while living in retirement.
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In its “Social Security Benefits: How Much Should Millennials Expect?” report, HealthView Services — a company that provides web-based health care cost and retirement planning tools — claims that millennials are “pessimistic that Social Security will play much of a role in their retirement.”
The HealthView report follows news from the Social Security Board of Trustees’ annual financial status report, which stated that the program will only be able to pay 80% of monthly benefits owed to retirees and survivors beginning in 2035, and outlines what impact this loss of income will have on millennials.
Of course, the main problem facing the Social Security Administration (SSA) is that the number of workers contributing to SSA benefits is decreasing as the number of retirees receiving benefits is increasing. According to Investment News, in 2005, the number of workers per Social Security beneficiary was 3.3. In 2020, it was 2.7. In 2035, the number is expected to dip to 2.3 contributors to beneficiaries.
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Since the impending doom of Social Security insolvency was announced, many have weighed in on what the government and the Social Security Administration can do to help extend the Trust Funds’ capability to pay full benefits and maintain long-term solvency. Not surprisingly, almost all center around the twin objectives of taxing the wealthy and/or reducing benefits plus addressing retirement age thresholds and tweaking taxable incomes.
The HealthView Service reports lists their own recommendations, including taxing Social Security as income, raising the full retirement age to delay claiming benefits, increasing the maximum taxable earnings cap and adjusting the payroll tax rates.
But the report also recommends practical savings for millennials to close the gap between what they should be getting in retirement, and the lower lifetime Social Security benefits they should now be expecting.
As Barron’s notes, assuming a 50% employer contribution match and annual returns of 6% and 5% during working and retirement years respectively, today’s 35-year-old worker making $50,000 a year will need to sock away an additional $21 a week, or $1,092 a year to make up for a future loss of SSA lifetime benefits. For someone making $100,000, the inflation-adjusted savings goal climbs to $33/week.
The oldest millennials will not be able to receive SSA benefits until eight years after 2035, so while they might be missing out more on benefits than their parents or grandparents, Social Security might still be an important income source to them, despite their skepticism.
“These benefits will clearly be less valuable to them than past generations,” said Ron Mastrogiovanni, CEO of HealthView Services, in the study’s accompanying statement. “But what may be a surprise is that even with a 20% reduction, Social Security will continue to be a significant source of retirement income for members of this generation.”
With an extra savings plan in place, some millennials might even be pleasantly surprised when it comes time to retire.
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