Tips & advice on getting your finances back on track.
The Social Security Act was signed into law in the United States on August 14, 1935 giving retired workers age 65 or older a continuing income after retirement. This year marks the 85th year of social security. It’s been around for such a long time, so why do millennials believe that they won’t receive any? In fact, 51% of millennials expect no benefits from social security when they retire. Could this be true?
Listen to our Podcast:
What is social security?
Social security is a social insurance program which is a contract between generations. It’s a pay as you go program, meaning the people who are working today are currently financing social security for their retired parents and grandparents. A person can qualify for social security as early as age 62 and as late as age 70. Millennials, and anyone born after 1960, will be able to start collecting the full benefits of social security at age 67.
In order to qualify for social security you need to have worked under the social security system for 40 quarters. A quarter qualifies as 3 months’ worth of work. As of 2021, you’ll need to earn $1,470 a quarter in qualifying work in order for the quarter to count towards social security. The maximum amount of quarters you can receive per year is four quarters, which would be $5,880 in 2021. By completing 10 years of work under the social security system, you’ll be able to collect social security once you reach the appropriate age.
Social security is calculated on your best 35 years of work, and those years don’t have to be consecutive. These years are your best working years under the social security system. The more you put into the system, the higher the amount you’ll receive when it’s your time to collect.
Why do millennials believe they won’t be able to collect social security?
When you hear something so many times, it’s easy to convince yourself that it’s true. Many young people hear from their parents; “there won’t be enough money for me to collect social security, so there will definitely be no money for you to collect social security”. This leads many millennials to just assume they won’t be able to collect social security when it’s their time.
The statement that social security won’t be around for millennials is a complete myth. At the end of 2019, social security had a $2.9 trillion surplus and it’s a system that’s not going broke. Fear not, millennials, there will be social security around for you to collect.
Read More: Personal Finance For Millennials 101
How much will I receive from social security and is it enough to retire on?
As mentioned earlier, social security is calculated based off of your best 35 years of work. An average earner will receive about 40% of their pre-retirement income, a high earner will receive about 20-30% of their pre-retirement income, and a low earner will receive 60% of their pre-retirement income. This means the system is slated toward low-income earners to help set them up for retirement. Many low-income earners might not have been able to save as much for retirement in other ways early on in life.
For any earner, you shouldn’t solely rely on social security for your retirement. Social security is not a replacement for saving for retirement. The system was never intended to replace your retirement savings. Social security was created to be a part of a bigger retirement savings plan. This plan should consist of saving and investing in your financial future. You can learn more about different ways to invest in your retirement here. For millennials, it’s good to start preparing now for your retirement, especially if you’re a younger millennial. The earlier you start saving, the better off you’ll be.
Listen to our Podcast:
How will social security change by the time I can collect?
Although you’ll be able to collect social security, the system might be a bit different when it’s your turn to collect. Due to the way social security is structured, and the recent pandemic, by 2035 social security will only be able to pay $.79 on the dollar. If nothing is done to fix these issues, there could be a cut in social security by the time millennials are of age to receive. These issues have arisen before, but Congress has been able to rectify them. There are currently no less than 300 bills before Congress to change and improve the social security system. With fixes made to social security, many generations to come will be able to receive benefits from the system they’ve paid into.
Read More: Financial Rules To Live Your Best Life
When social security was first created, people were not living nearly as long as they are today. People only lived until about 65 years old in 1935, when they system was created, and the starting age to receive was 65. This meant that many people weren’t even living long enough to see their benefits. A change that may take place is a higher starting age to begin collecting. As mentioned earlier, currently the earliest starting age to collect is 62 years old. With longevity increasing, the starting age to collect may rise to 65 years old to collect. At the age of 67 you can receive full collecting benefits of social security. By the time millennials reach retirement age, that age may go up to 70 years old to receive full benefits.
How does disability affect my social security?
It’s important in life to expect the unexpected, and becoming disabled, either through accident or illness, before reaching retirement age does happen. In fact 1 in 5 people collect social security as a disabled person before reaching the age of 62. Many of these people that are collecting disability early are younger workers, such as millennials.
In order to collect disability you must work at a job that is under the social security system. In order to claim disability you have to be disabled, which means you can’t perform any kind of work according to social security rules. Social security will do a full medical evaluation according to their standards to determine if you are disabled. The rules social security follows are different to what a doctor might claim as disabled. The average disability benefit in 2020 is $1,261 per month. This is a modest amount and might not be sufficient enough for your lifestyle. This is why it’s always important to be saving and investing throughout your life.
What is a ‘MySocial Security’ Account?
MySocial Security is an account that can be established once you’re over the age of 18. This account is basically a snapshot of everything you’ve put into the system. Your account can help your verify your earnings and get estimates of your future benefits to help you make important financial decisions. Some helpful things you can do with your account are:
By creating a MySocial Security account you can check that all of your quarters are being registered properly in the system. As a millennial, you might not be thinking about this now, but this is the time you want to make sure your information is correct. By making sure the information is correct now, you’re ensuring that there won’t be any mistakes in your earnings when you’re ready to collect your social security.
Read More: What Is The ‘My Social Security Account?’
Social security has been around for 85 years and is not going anywhere, anytime soon. This is a great system for retirement and, regardless of your current age; you’ll be able to receive the benefits you’ve earned. However, don’t rely on social security to fund your entire retirement. Start investing in an IRA or investing in your company’s 401k program especially if there is a company match.
Social security, in addition to your other retirement savings, will help you live comfortably during retirement. If you haven’t done so already, set up a MySocial Security account. This will help you stay on top of your social security earnings and detect any errors sooner rather than later. Retirement, especially for millennials, may seem like forever away, but don’t think that it’s not important to start preparing now!
Katherine Fatta is the Social Media Coordinator at Navicore Solutions. She creates fun and informative social media posts that engage the public. She’s also the host of Navicore’s podcast, ‘Millennial Debt Domination.’ You can listen to our podcast here.