It’s no secret that millennials are facing unique pressure when it comes to retirement. While most millennials have started saving for retirement, many hold little faith when it comes to the Social Security and benefits they will receive when they retire. While young millennials have some grounds for these concerns with potential Social Security cuts, it is important for this generation to not look at this chapter in life with dread.
A recent survey conducted by GOBankingRates revealed that 33% of Americans ages 23 to 34 believe Social Security will run out before they retire. Young millennials held the bleakest perspective toward the availability of Social Security in retirement compared to the other generations — this belief is held by 24% of adults ages 18 to 24, 21% of adults ages 35 to 44, 12% of Americans ages 45 to 54, 5% of those ages 55 to 64 and 2% of those ages 65 and older.
While young millennials are clearly not enthusiastic about Social Security availability, are their fears warranted? To answer this question, let’s look at the data and hear from some financial experts about how millennials should prepare for a retirement that may look and feel different than retirement for previous generations.
What Will Social Security Look Like When Millennials Retire?
While young millennials will not be retiring for another 33 to 40 years and the state of their Social Security situation is not set in stone, we can make some pretty educated estimates as to what it will look like in the future.
“The recent report from the Social Security Administration projects that benefits would need to be cut to 73-76%,” said Jay Zigmont, CFP and founder at Live, Learn, Plan. “While no one knows the future of Social Security for sure, this is probably a reasonable assumption. What that means, in reality, is to plan on getting only about 75% of your [full] Social Security [benefit].”
While millennials may think they will receive no money for retirement, they are still projected to be receiving 75% of Social Security benefits — which is definitely better than nothing. But it’s not difficult to see why millennials could be misled to believe there will be no Social Security available to them, as many media outlets are announcing Social Security cuts and concerns for future retirees. Despite the growing concern, young millennials are still on track to receive Social Security, although, it may look a little different than the previous generations’.
How Many Millennials Are Prepared for Retirement?
When it comes to retirement, the key is to be prepared. According to GOBankingRates’ survey, 29% of Americans ages 25 to 34 have $0 saved for retirement. These stats are concerning to financial experts because the sooner people start saving for retirement, the faster their savings can begin compounding, leading to major benefits over time. Those who haven’t started saving and are in their 30s will likely need to set aside greater sums of money each month than the 20-year-olds who have already started saving.
When Should Millennials Start Saving for Retirement?
No matter what generation you are from, the sooner you can start saving for retirement the better. While the maximum amount you can add to an IRA per year is $6,000, you do not need to contribute the max, said Marguerita Cheng, CFP and member of the CFP Board Ambassadors.
What’s most important about saving for retirement is getting started and allowing the money to build over time. If you can’t afford to meet the yearly maximum, contribute what you can.
You can apply this advice to building wealth in a 401(k) as well. “You don’t need to contribute the max for a 401(k), but at least take advantage of this style of savings to get the employer match,” Chen said. “Even if you don’t see yourself there for a long time or it’s not your dream job, take advantage of the opportunity to build wealth for yourself and your future.”
If You Haven’t Started Saving Yet, It’s Not Too Late — Here’s How To Start Saving for Retirement as a Millennial
In order to make sure you are making the necessary arrangements for retirement now, here are a few steps you should take to ensure you can retire in the future.
Make a Financial Plan
It’s important to make sure you are on the right track for retirement. Creating a financial plan and making changes to eliminate debt is a great first step.
“Start by getting on a budget and getting out of debt,” Zigmont said. “Once you are out of debt, start saving and investing. Make sure you are taking advantage of your company’s 401(k) or similar retirement plans, and especially any match. Companies often offer to match what you put into your retirement plan. While a company match may have a requirement, such as to work for the company for three years, that only applies to the match, not your own contributions.”
Focus On What You Can Control
At the end of the day, we can’t predict what Social Security and retirement will look like in 33 to 40 years. Although the exact status of Social Security is uncertain, young millennials do not need to be overwhelmed by the thought of retirement in the near future. By taking action now, they can prevent future anxieties later.
“You can not control whether Social Security will be there or not, so don’t rely on it,” said Scott Meyer, wealth manager and partner at Merit Financial Advisors. “Focus on what you can control, which is your own savings and own behavior. Work your own plan and continue to educate yourself.”
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Methodology: GOBankingRates surveyed 1,001 Americans ages 18 and older from across the country between May 24 and May 25, 2022, asking 8 different questions: (1) Have you ever followed money advice from a well-known expert?; (2) When do you believe you will be able to retire?; (3) What account(s) are you currently utilizing for your retirement? (Select all that apply); (4) Do you plan on funding your retirement with Social Security?; (5) How much monthly Social Security income do you believe you will receive when you are retired?; (6) Given the recent performance of overall Stock Market indicators (S&P 500, Dow Jones Industrial Average, etc.) how are you currently adjusting your investing behavior?; (7) What items do you purchase most frequently at Walmart?; and (8) What items do you purchase most frequently at Costco? GOBankingRates used PureSpectrum’s survey platform to conduct the poll.