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A recent Transamerica survey found that 80% of millenarians, defined in the survey as people born between 1979 and 2000, fear that social security will not be there when they need it. This is not surprising – for years, they have heard that Social Security was about to "run out of money".
The language does not correspond to reality. Social security benefits come from two sources: taxes levied on workers' current paychecks and a trust fund made up of specially issued US Treasury securities. This trust fund is expected to be exhausted by 2034, but the system will continue to collect hundreds of billions of payroll taxes and issue hundreds of billions of benefit checks. If Congress does not intervene, the system can still pay 77% of the expected benefits.
In any case, it is likely that the Congress will intervene, as it did in 1977 and 1983, to strengthen the finances of social security. Social Security is an extremely popular program boasting bipartisan support and influential lobbies, including the very powerful AARP, looking for it.
Nevertheless, Generation Y members who believe that social security will not be there for them could make bad choices about their retirement savings. The worst result would be that they did not save at all, convinced that their retirement was hopeless. But any of the following myths could cause problems.
Myth 1: I can save enough to retire even without Social Security.
Good luck with that.
Currently, the average social security benefit is just under $ 1,500 a month. You would need to save $ 400,000 to generate a similar amount. (This assumes that you are using the "4% rule" of financial planners, which recommends not to take more than 4% of the portfolio in the first year of retirement and then adjust it according to the policy. ;inflation.)
And that may underestimate the value of social security. The Urban Institute estimates that many single, middle-income adults who will be retiring between 2015 and 2020 will receive about $ 500,000 in benefits from the system, while couples will receive about $ 1 million. Millennials, meanwhile, should receive twice as much: about $ 1 million for an average-income adult and $ 2 million for a couple.
Trying to save enough to replace 100% of your expected Social Security benefits may not be possible, and this could cause you to fail to meet other important goals, such as saving for your child's education or even have fun from time to time.
A more realistic but still cautious approach would be to assume that you will get 70% to 80% of the projects in your social security statement, said Bill Meyer, founder of Social Security Solutions, a software tool for security claims strategies social.
"Somewhere, a 20% to 30% reduction seems to me to be the worst case scenario," Meyer said.
Myth 2: I can ignore my social security account.
Your future social security audit will be based on your 35 highest earning years. However, to get what you owe, your earnings must be accurately reported, and this does not always happen. Employers may not report the correct information to Social Security or report your income at all. You can correct these mistakes if you catch them on time. Solutions could be difficult in decades, when the employer may have ceased operations and the necessary documents may be unavailable.
Millennials may be more prone to errors than previous generations, as they tend to change jobs more, Meyer said. It is therefore important for them to check their income statements, which they can do by creating an account on the Social Security Administration's website.
"Every two or three years you have to log in and make sure your income is properly reflected," Hayes said.
Myth 3: If it's still there, I should grab it as soon as possible.
Millions of Americans commit this mistake each year, blocking permanently reduced payments and risking losing up to $ 250,000 in lost benefits by making a claim too early. But it is highly unlikely that Congress will reduce the benefits of retirees or those nearing retirement age, Meyer said.
Instead, there will likely be incentives to delay your social security claim. Currently, benefits increase from about 7% to 8% for each year of waiting after age 62, until benefits reach 70 years of age.
Working for a few more years can also offset years of low or no millennial careers when incomes may have been depressed by recession or work in concert.
"A year with higher incomes can replace a lower year," said Meyer. "You can fill those gaps."
Liz Weston is a columnist for NerdWallet, Certified Financial Planner and author of Your credit score. Email [email protected]. Twitter: @lizweston.
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