Writing off Social Security is something that workers across different generations may be inclined to do at this point. After all, it's hard to read the words "Social Security" in the news without seeing the words "benefits cuts" somewhere in close proximity.
It's not all that surprising, then, that 75% of Gen Xers don't think Social Security will be there for them during retirement, according to data from Atticus. But to give up on Social Security completely makes no sense at all.
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The truth about Social Security
It's easy to see why so many workers today are worried they won't get Social Security in retirement, despite paying into it year after year. The program is facing a significant financial shortfall in the coming years. And if lawmakers don't find a way to pump more money into the program, Social Security may have to cut benefits in roughly a decade's time.
But there's a huge difference between Social Security cuts and the program going away completely. The aforementioned data seems to indicate that Gen Xers are convinced they won't get Social Security at all. But the worst-case scenario on the table right now really is a broad reduction in benefits -- nothing more.
The reason Social Security is not at risk of disappearing completely is that the program's main source of funding is payroll tax revenue. But it's not as though lawmakers have decided to do away with Social Security taxes. Just take a look at your most recent paycheck -- chances are, you lost some of your earnings to help fund the program.
Because of this, you can rest assured that Social Security will play a role in your retirement in some shape or form. But if you want to avoid financial worries later in life, you're better off making sure that you're not too dependent on those benefits once your career comes to an end.
Save a bundle no matter what
Even though Social Security is not at risk of going away entirely, you should know that without benefit cuts, the program may only replace about 40% of your pre-retirement wages, assuming you're an average earner. But most retirees need roughly double that level of replacement income to live comfortably and have money left over for the activities they want.
For this reason, it's really essential that you make an effort to save for retirement on your own -- whether you think Social Security will be around during your senior years or not. The good news, though, is that you can build up a sizable retirement nest egg by giving yourself an early start.
If you sock away $500 a month in a retirement plan over a 35-year period, and your portfolio delivers an average annual 8% return during that time, which is a notch below the stock market's average, you could end up with just over $1 million. And this scenario doesn't even have you saving for retirement from the moment you start working. Rather, you could conceivably put off retirement savings until age 30 and still have 35 years before retirement to accumulate wealth.
Of course, if you're a Gen Xer who's yet to start saving for retirement, you may need to contribute more than $500 a month toward your long-term savings to play catch-up. But a decent-sized nest egg is by no means off the table.
If you're 45 years old with a 20-year savings window, try socking away $750 a month. That may be doable if you're at a point in your career where you're earning more. If you score an 8% return on your investments, that leaves you with about $412,000, which isn't exactly pocket change. Or, make it $1,000 a month for a balance of $549,000 (once again using an 8% return).
There's no need to write off Social Security for your retirement. But it is a good idea to save as well as you can for your senior years. If benefits wind up getting cut, the extra money in your 401(k) or IRA could come in very handy. And if benefits aren't reduced, you'll have that much more money to spend at your leisure.
