Millennials aren’t counting as heavily on Social Security checks for income in retirement as some of the older generations.
Only 6% of millennial 401(k) participants—typically those born between 1981 and 1996—expect Social Security to be their primary income source in retirement, a recent Cerulli Associates report found.1
Older workers, in contrast, plan to rely more heavily on Social Security in retirement. Roughly a third (30%) of Gen X 401(k) participants, typically those born between 1965 and 1980, said their main income source will be Social Security. Meanwhile, more than half (56%) of already-retired people depend mainly on Social Security for income, with personal retirement accounts as their primary savings for only 7% of that cohort.
For many Americans, Social Security is an essential source of income in retirement—although it was never meant to be people’s primary source of income.2 The program currently faces a significant funding shortfall that could hurt millions of retirees. A Congressional Budget Office projection found that starting in 2034, retirees would receive just 77% of their Social Security benefits unless Congress acted before then.
Millennials Get Proactive About Retirement Savings
While financial advisors expect some sort of congressional solution to the Social Security shortfall, they say that younger generations are taking retirement saving into their own hands.
The majority of millennials (58%) anticipated that their personal retirement accounts would be their primary income source, compared with 39% of Gen X.
“When I talk to young people, I think they have a little negativity towards the government or public programs,” said Maryanne Gucciardi, a certified financial planner (CFP) at Wealthmind Financial Planning. “I think they rely more on their own ability to fund their retirement because they’re worried that Social Security won’t be there for them.”
In the past, more workers could rely on pensions, too, which have fallen out of fashion in the past few decades. Only 5% of all respondents thought that their primary source of retirement income would be pensions, compared with 46% who thought it would be personal retirement accounts.3
“Nowadays, most people don’t have a pension—20 or 30 years ago many more people had pensions,” Monica Dwyer, a senior vice president and wealth advisor at Harvest Financial Advisors, said. “The onus is more on the individual to make sure they are saving enough for retirement.”
Now, when financial advisors like Dwyer meet with clients who are worried about Social Security, they create projections that account for the potential 23% cut in benefits.
In order to compensate for Social Security shortfall, experts recommend saving more for retirement by working longer, reducing spending, taking advantage of retirement accounts like 401(k)s and Roth IRAs, and waiting past full retirement age to collect Social Security.
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