Millennials shouldn’t count on full Social Security benefits. Here’s how retirement advisers can help

Millennials shouldn’t rely on Social Security for 100% of their retirement. In fact, a new study says, they shouldn’t even rely on it for 100% of their Social Security checks.

According to the HealthView Services, a healthcare research group, Americans born between 1981 and 1996 should expect about a 20% cut to their projected benefits from Social Security. That’s based on a recent report by the program’s board of trustees, which predicts that unless changes are made, Social Security will only be able to pay out 80% of its scheduled benefits by 2035, or 74% by 2096.

“As it keeps getting cut, it keeps getting tougher for those folks who are in retirement,” said Ron Mastrogiovanni, CEO of HealthView Services. “And saving today becomes so critical.”

There are things Congress can do to keep Social Security solvent. It can raise the full retirement age to 69, increase payroll taxes or make a number of other adjustments. But as HealthView points out, each of these changes means less cash for the program’s recipients, whether through taxes or lost years of payments.

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“It's all going to be either more money going into the program or less money coming out,” said Michael Daley, HealthView’s director of marketing. “It's going to end up reducing your benefits one way or another.”

Fortunately, the study’s authors say, millennials can make up the difference by planning ahead — with the help of their advisers.

“You really need to focus on savings because you cannot depend on the federal government or the state government to cover your expenses so that you can maintain your lifestyle,” Mastrogiovanni said. “We need to do that ourselves, and you have the time to do it.”

By HealthView’s calculations, even modest savings can fill the gap. The study imagines a 35-year-old millennial in 2022 earning a $50,000 salary and planning to retire at age 67. If nothing changes, she stands to miss out on $364,775 from Social Security over the course of her lifetime. 

However, if she puts just $21 a week into her 401(k) — assuming her employer matches her contributions by 50% — she’ll be able to retire on time and in just as much comfort as if her projected benefits were made whole.

The study also imagines other scenarios. For a millennial earning $100,000, this weekly deposit would be $33 a week. For a millennial earning $150,000, it would be $39.

First, however, they need to be aware of the problem. That’s where retirement advisers come in.

“As an adviser, you need to bring your clients in to do a couple of things,” Mastrogiovanni said. “No.1, they need to understand what the potential impact will be on what they require to maintain their standard of living in retirement. And the sooner that client takes action, the better off that client will be.”

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But not everyone agrees that Social Security is necessarily headed for drastic cuts. The Center for Retirement Research at Boston College, for example, has put out its own study of the Trustees’ report and concluded that it contained “no real news.”

“The 2022 Trustees Report confirms what has been evident for almost three decades — namely, Social Security is facing a long-term financing shortfall that equals 1% of GDP,” the CRR wrote. “The changes required to fix the system are well within the bounds of fluctuations in spending on other programs in the past.”

Anqi Chen, the CRR’s assistant director of savings research, also disputed the notion that higher payroll taxes are equivalent to a Social Security cut, even if that’s how Congress chooses to make up for the shortfall.

“If it’s completely, 100% on the tax side, then that full cost isn’t borne by the employees by themselves,” she said. “It’s split between the employee and the employer.” 

Chen emphasized that even if it faces challenges, Social Security isn’t going anywhere.

“I get asked a lot about. ‘Is there going to be Social Security when millennials retire?’ And I think there is a lot of misconception out there,” she said. “If there’s no action [from Congress], then potentially benefits might be cut. But it is a program that will still be around, and it’s a program that provides inflation-protected income in retirement. So I think reminding people of that is really important.”

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On that point, Chen and the HealthView authors agree.

“Millennials are going to get something from Social Security — almost certainly not what their parents and grandparents got, but they will be able to get something,” Daley said.

Chen believes it’s still possible that Congress will take action, and that in 2035, Social Security benefits will be paid out fully as scheduled. But even if that happens, both the CRR and HealthView urge millennials to build up additional, outside savings. No financial expert recommends living on Social Security alone — which raises a key question.

“One of the things that needs to be considered is this,” Mastrogiovanni said. “How important is it for us as a country to ensure that people who have gone through their working lives should receive a living benefit in retirement? That's an important question that we, as a society, need to answer.”