If you’re a millennial, you may be worried about your retirement savings and Social Security benefits. More than a third of millennials don’t expect to receive any Social Security benefits, according to a 2023 survey by the Nationwide Retirement Institute.

While millennials (the generation born in the years 1981 to 1996) will likely receive some Social Security benefits, there is uncertainty about Social Security’s future, including whether Congress will cut it or increase the full retirement age.

One thing is for sure: Millennials (and everyone else) should plan to invest in their retirement.

How Does Social Security Work?

Old-Age, Survivors, and Disability Insurance (OASDI) is run by the Social Security Administration (SSA) and provides retirement, survivor, and disability benefits for disabled workers. OASI is funded by a dedicated payroll tax.

Employers and their employees each pay 6.2% of wages into it, up to the taxable maximum for net earnings in the current year. In 2024, that amount is $168,600. If you are self-employed, you must pay up to 12.4% of Social Security tax.

Social Security benefits are based on work credits, which are earned based on annual income. You can earn up to a maximum of four credits a year. For example, in 2024, you can earn one credit for every $1,730 and all four annual credits with $6,920. Millennials will need 40 credits to collect Social Security benefits (this applies to everyone born after 1929).

The government calculates your monthly Social Security benefits based on your average indexed monthly earnings (AIME) over your 35 highest-earning years of work and adjusts for inflation. Individual benefits vary from person to person.

Many Americans are concerned about Social Security after reports from the Old-Age and Survivors Insurance (OASI) Trust Fund stated it only has enough in its coffers to pay 100% of benefits until 2033, when the OASI predicts its reserve funds will be exhausted. There are a few reasons why this is occurring, including Americans having fewer children, an overall increased life expectancy, and the ongoing retirement of the baby boomer workforce, meaning fewer payments are going into the fund.

OASI cash reserves may be depleted, but continuing program income, according to the Social Security Administration, should cover 77% of scheduled benefits going forward.

Your Age at Retirement Matters

If you’ve paid into the system for at least a decade, you can claim partial benefits at age 62 or full benefits at either age 66 or 67 (depending on what year you were born). Millennials can take full retirement at age 67, as can everyone born in 1960 or later.

“Every year you postpone claiming benefits, your eventual benefit can increase by 8%. The higher baseline will last for the rest of your retirement and serve as the basis for increases linked to inflation,” says Cindy Scott, . “That means millennials who can wait to retire until age 70 can expect their benefit to increase by up to 24%.”

How Much Money Will Millennials Receive from Social Security?

While the exact amount of your Social Security benefits will depend on your earnings, you can estimate the amount. However, there are some guidelines and caveats to keep in mind.

First, the Good News

As long as everyone continues to pay payroll taxes, Social Security checks will keep arriving in beneficiaries’ bank accounts. Congress continues to seek solutions to ensure Social Security benefits do not expire by 2033 and beyond. You can forecast your Social Security earnings to understand your benefits.

For example, using , a millennial born in 1981 with a median income of $71,566 who takes Social Security benefits at age 67 would receive an estimated $2,485 (in 2024 dollars) each month. If they only received 77% of those benefits, the check would be $1,913.

If you’re a younger millennial—let’s say you were born in 1996 and earning the same median income—your estimated monthly benefits would be $2,589 (in 2024 dollars) at age 67, or $1,993 if you only got 77% of your projected future benefits. Millennials still have decades to save for their retirement, plus if they wait until age 70 to take Social Security benefits, they can take advantage of a fairly sizable bump in benefits work credits because the benefit pool will likely continue to exist.

Now, the Bad News

No matter what amount of Social Security you receive, it won’t be enough to cover all your retirement costs. The reason is that the cost-of-living adjustments (COLAs) for Social Security have not kept pace with inflation and the real cost of living for older Americans.

For example, in 2024, benefits went up by around $50 per month on average due to the 3.2% COLA increase.

Fast forward 20, 30, or 40 years from now, and millennials may face the same tough economic situation as today’s retired adults.

“We don’t think millennials should bank on access to their full Social Security benefit,” says older millennial Priya Malani, , a financial planning firm catering to High Earners, Not Rich Yet (HENRYs), a subsegment of the millennial population. “When we design financial plans for millennials, [and when we do] we typically reduce the Social Security benefit by half, if not more.”

Malani adds that her firm prefers to set up clients not to rely on Social Security benefits, which can then function as “icing on our retirement cake.”

Tips to Save for Retirement as a Millennial

In general, millennials are trending toward using conservative investing strategies.

, vice president of Retirement Products at Fidelity Investments, shares that this trend may stem from millennials having lived through significant events like the Great Recession and, for younger millennials, the coronavirus pandemic.

“Now, with multiple savings priorities of their own, millennials are choosing to be more conservative in their investing habits. The concern is that they may not have the appropriate mix of assets to help them adequately achieve their retirement objectives,” says Assaf. Here are some more ways that millennials (and others) can help save enough money for retirement:

• Start saving early
• Use the 50/30/20 budgeting rule
  
• Maximize savings with a tax-free savings account
• Contribute to your employer’s retirement plan
• Make a plan to pay off debt
• Diversify your investments

Start Saving Early

Many financial experts recommend saving 10 times your salary by age 67, so the earlier you start, the more you can save.

That recommendation helps ensure you can follow the 4% rule of thumb when you enter retirement and start withdrawing funds. The 4% rule is a commonly employed guideline for managing retirement expenses: Add up all your investments and withdraw 4% of that sum in the initial year of your retirement.

Then, in the following years, you update the withdrawal amount to accommodate inflation. Adhering to this strategy should help sustain your finances throughout a 30-year retirement.

Use the 50/30/20 Rule

This classic budgeting rule can help you organize your spending habits now to benefit your financial self later.

Take your net income and divide it into three sections: Approximately 50% should go to living expenses, like rent or a mortgage payment (needs); 30% should go to wants, such as saving for a vacation, a gym membership, or anything that isn’t deemed essential; and the remaining 20% should be split between savings and paying down debts.

Maximize Savings with a Tax-free Savings Account

Consider opening a traditional or Roth individual retirement account (IRA), a Flexible Spending Account (ask your employer if they offer one), or a Health Savings Account if you have a high-deductible insurance plan. These are all tax-free or tax-advantaged savings vehicles that can help you lower your tax bill.

Contribute to Your Employer’s Retirement Plan

If offered, sign up for your employer-sponsored retirement plan, like a 401(k) or 403(b), then automate your retirement savings directly from your paycheck.

When possible, always take the full benefit of an employer’s match and try to save at least your company’s match level, Assaf recommends. “Otherwise, it’s like leaving free money on the table,” she says.

Make a Plan to Pay Off Debt

Chances are you have some student loan debt if you are a millennial. The millennial demographic carried an average balance of around $46,000 in 2021, according to Experian.

Whether your debt is student loans or another type, reducing or ideally eliminating extra debt before you officially retire will help your income go further toward covering living expenses and other costs in retirement.

Take time to investigate ways to pay off your student loans, from student loan forgiveness programs to setting up an income-driven repayment plan. If you have credit card debt, explore using tried-and-true methods to reduce it, such as paying off the debts with the highest interest rates first.

Diversify Your Investments

Ensuring you have a diverse mix of stocks, bonds, cash, and other assets in your retirement accounts offers the potential for the best long-term returns vs. investing only in one area within your asset allocation.

“Diversification in investing means you can spread your risk by adding different types of investments to your portfolio that aren’t likely to go up or down simultaneously,” explains Scott. “Millennials looking to diversify their portfolios should consider their retirement goals and timelines in deciding which diversification strategy is right for them.”

The Bottom Line

If you’re a millennial, chances are you will receive (at least some) Social Security benefits when you retire, but you will need to supplement it just to pay for essentials. With careful planning, budgeting, and investing now in your retirement, you can create a more financially stable life for your future self.