Can You Count on Social Security?

At some point in my young adulthood, I became aware that many millennials were skeptical that Social Security would still be paying benefits by the time we retire. Curious whether that sentiment still stands, I recently posted to my Facebook page to ask my generational cohorts whether they’ve absorbed a similar message and how they’re incorporating Social Security into their retirement plans. Many respondents said that they aren’t counting on Social Security to be around in a few decades and that to stay afloat, they expect to tap their own investments in 401(k)s and IRAs, brokerage accounts, and real estate.

In reality, Social Security is not doomed. Much of the anxiety surrounding its future stems from projections that if Congress takes no action, Social Security’s trust fund will run out of money in 2035. But even if that happens, Social Security will be on track to pay out 80% of scheduled benefits from payroll taxes. What’s more, lawmakers are likely to shore up the program, although it may be at the last minute. Strategies may include increasing the percentage taken out of workers’ checks for Social Security payroll taxes—currently, it’s 6.2% for employees—or boosting the amount of income subject to payroll taxes. Other ideas include raising the age of full retirement (currently, it’s 67 for anyone born in 1960 or later) and changing cost-of-living adjustments so that they result in smaller benefit increases.

That’s reassuring for millennials who struggle to save for retirement. As one of the commenters on my Facebook post pointed out, financially strapped millennials who are carrying heavy student debt and putting off homeownership don’t have much choice but to bank on Social Security.

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Shaping your retirement plan. Like some of my friends, I don’t give income from Social Security much weight in my retirement planning. I think that benefits will be available in some form, but I’d rather not rely on them for the bulk of my income. For someone who claims Social Se­curity at full retirement age and had average earnings, benefits replace only about 40% of preretirement income. The percentage drops to about 27% for high earners; it can be as high as 75% for very low earners. I’m unusual for someone my age because my husband and I are hoping to collect a pension as retirees—he’s in the military and will receive a pension if he completes 20 years of service. But we’re also squirreling away money in tax-advantaged retirement accounts and our brokerage account.

For stability and peace of mind, some financial planners counsel young clients to take a similar tack: Expect Social Security to be around, but plan for retirement as though it won’t. “If you can take care of yourself with your own investments, the rest is icing on the cake,” says Tara Tussing Unverzagt, a certified financial planner and president of South Bay Financial Partners in Torrance, Calif.

Still, given that Social Security isn’t going to vanish, it’s reasonable to include it as you put together a retirement plan. At ssa.gov/myaccount, you can sign up for an account. After you’ve logged in, you’ll see your estimated monthly retirement benefits, which vary depending on the age you start taking them (for more, see Your Social Security Questions Answered). Keep in mind that your estimates will likely change over time along with your earnings and the policies regarding Social Security.

To be conservative, you could assume a 20% cut to your es­timated benefit to account for the pos­sibility that just 80% of benefits will be paid if Social Security’s trust fund is depleted. For clients who are especially worried, CFP Kaleb Paddock, founder of Ten Talents Financial Planning in Parker, Colo., assumes a reduction of as much as 50%.