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Most millennials think social security is an issue they won’t have to worry about for many years to come, but understanding the system is critical to their future. For many, it seems like a confusing topic to comprehend. However, that comprehension is important in obtaining the best possible outcome. Here are some of the things millennials should know about social security.
What It Is
To really understand Social security, one must first begin with the basic definition and intention of the program. Essentially, social security provides economic stability for millions of Americans. This program is largely funded by the young who are actively working. Those who are retirees or disabled are the ones who collect the payments each month.
How It Applies to You
A recent survey indicated that 80% of millennials, defined as those born between 1979 and 2000, do not really believe that social security benefits will still be available to them when they retire.
Although there is some reason for concern, the situation isn’t quite that dire. Most benefits paid out are collected directly from current payroll taxes. The rest come from a trust fund specifically for U.S. Treasury securities.
Without action by Congress, that fund will be depleted by 2034, but even if the worst should happen, the system could still pay 77% of projected benefits. It is also extremely unlikely Congress will let the worst happen. They’ve already intervened to fix the system in both 1977 and 1983. Let’s assume it will be there. If so, you’ll probably need it.
By now, we all know how volatile the stock market can actually be, and that’s where most 401K funds are invested. In addition, many members of this generation have little to no life or disability insurance coverage.
You should understand how the system works. Social security retirement benefits are calculated based on an average of your best 35 years of earnings, and an indexed formula is applied to derive a percentage. That formula varies year by year.
You can’t draw your maximum benefit until full retirement age, which is currently 67. Although you can retire as early as 62, this decision will significantly reduce your payments.
Should you become disabled before this time, you are also entitled to benefits. There are degrees of disability, and benefits vary based on how it’s defined.
Many Millennials Have Already Benefited
You may be surprised to learn that many millennials have already benefited from social security.
According to data, about 9% of millennials have received benefits due to the loss of a parent or the disability of the family’s leading breadwinner. These funds have helped to lift millions of millennial youngsters out of poverty and give them an opportunity to succeed in life.
For millennials, social security seems like something that is a lifetime away. However, it is paramount that they understand the various components of this program to ensure they don’t face too many obstacles when they do need it.
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