Social Security; Will Millennial’s Be Able To Count On It For Retirement?
By Les Stephen
When working with younger investors, this is one of the most commonly asked questions. Recent studies have found that only 25% of Millennial’s think that Social Security will be around for them and from my experience, that statistic may be on the high side. Although the system has issues, there are many things that can be done to keep the program healthy for the Millennial’s and beyond. Also, many people confuse the exhaustion of the “trust fund” with the end of the program. Even if the trust fund (think savings account that makes interest) is depleted, approximately 76% of the payments would be covered by current workers paying into the system even if Congress does nothing to help the program. Things that could be done include a reduction in current benefits (not a great idea), increasing the retirement age or increasing the payroll tax rate. To look at this a little deeper, maybe we should look under the hood and get a little history.
There are massive complexities to the Social Security system, so it would probably be best for me to give a few thoughts and share some highlights. The Social Security Act was signed into law in 1935, but the regular monthly payments as we know today didn’t start until January 1940. The original concept was that it was supposed to be more of a “safety net”, so someone who had nothing for retirement would at least have some form of income when they stopped working. With the recent near elimination of company pension programs and the lack of planning by individuals, dependence on the program is now very common. Unfortunately, today 64% of current retirees rely on Social Security benefits for their primary source of income.
So, the next question is how does it work? First of all, to qualify for Social Security, you need 40 credits (quarters) of employment, which = 10 years of employment paying into the system. As stated earlier, most of the funds that are paid come from current workers paying into the system and the balance is paid by the trust fund which is an account that makes interest. Employees and employers each pay 6.2% of taxable wages to finance Social Security (self-employed therefore must pay the entire 12.4%). Depending at what age you start the payments and how much you have contributed throughout the years will determine the amount you will receive. It is actually a very complicated calculation and way too boring for a blog. If an individual qualifies, he or she can start anywhere between 62 and 70 years of age. Of course, there are different rules for survivor benefits, spousal and child benefits, and disability benefits.
So, what do I do? The first step is to have a plan in place for YOUR retirement. When you think of Social Security, have the mentality that it should be a great supplemental stream of income rather than the chief way to pay your bills. There are many programs including company sponsored plans and many other options that you can start on your own. A Financial Advisor can work with you to give you the best options available for your specific circumstance.
This is very much an overview so be sure you contact your Financial Advisor, or you can start with www.ssa.govfor more information. Thanks for reading.
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The content in this article was prepared by the article’s author. Voya Financial Advisors, Inc. does not endorse its content, and the views expressed may not necessarily reflect those held by Voya Financial Advisors, Inc.