Many young Americans don’t believe they’ll ever see the benefits of Social Security — and that might be a good thing.
Social Security, which was enacted 84 years ago this week, is a lifeline for Americans across the country, but the program is at risk of turmoil. The two trust funds that support the program, which pays benefits to retirees, disabled Americans and disadvantaged children, may be out of money in 15 years, in which case beneficiaries would receive about 80% of the benefit they’re owed, according to a Social Security trustees report released earlier this year.
Poll after poll shows millennials, who are born between the early 1980s and mid-1990s, believe they won’t ever get Social Security. Eight in 10 millennial workers said Social Security won’t be there for them when they get to retirement, according to a 2017 study by Transamerica Center for Retirement Studies.
The truth: Social Security will still be around in some capacity, but planning as if it won’t may be the best strategy when saving for the future. “We have to rely on assumptions that are reasonable,” said Sergio Garcia, an associate planner at Quest Capital Management in Dallas. “With the ever-changing landscape of Social Security, it has been my approach to disregard the benefit entirely.”
Congress is getting much more serious about retirement security, proposing bills that would encourage companies to offer new (or better) retirement plans and promote savers to put more away for their futures. But Social Security is typically a “third rail” in politics, and lawmakers seem to be scratching their heads about how best to fix the system, such as increasing taxes or raising the age when one would qualify to receive 100% of the benefit.
Legislators are particularly mixed about how changing the program would impact millennials. Some say increasing taxes now would place a burden on young Americans, who are just beginning their careers and already struggle to afford their bills and student loans. Others say doing nothing would hurt millennials even more down the line, and that the government can’t afford to delay reform any longer.
Even though the benefit will exist for millennials — whether it is cut or not — there are other unknown factors to consider, such as how the income will be taxed in the future and if the benefit will be less than was promised, Garcia said.
Also see: One reason lawmakers are hesitant to fix Social Security: the millennials
Pretending Social Security won’t exist can be a powerful tool, financial advisers said. Doing so would require Americans to save more for their retirement, which can be daunting but also motivating, said Michael McKevitt, director of financial planning at Guillaume & Freckman in Palatine, Ill. Ignoring Social Security, at least for now, also removes the crutch the program might seem to be for future retirees, said Mackenzie Richards, a financial adviser at BankRI Investment Services in North Kingstown, R.I. “If you think you have no safety net, you’ll be much more incentivized to save for your future self,” she said. “Younger clients have time on their hands, which should be used to their advantage as much as possible,” she said.
At a certain point, it might be best to include Social Security assumptions — but at a significant discount. McKevitt said he does not include income from Social Security for clients in their 20s through early 40s, but will begin assuming they’ll receive 50% of their benefit at age 45. Around age 50, he’ll increase the assumption to 75%.
An important aspect of financial planning is focusing on what the individual can actually control, said Peter Lazaroff, co-chief investment officer at Plancorp in St. Louis. “We can’t control Social Security, so it’s best to assume it won’t be there,” he said.
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