Millennials chart new course for retirement as Social Security concerns grow

Millennials are less reliant on Social Security for retirement income than previous generations. According to a recent Cerulli Associates research, just 6% of millennial 401(k) members, who are generally born between 1981 and 1996, anticipate Social Security to be their major source of income in retirement.

This shift in retirement planning among millennials reflects a broader trend of financial independence and skepticism towards traditional retirement systems. Many young professionals are exploring alternative investment strategies, such as cryptocurrency and real estate, to diversify their retirement portfolios. Additionally, the gig economy and remote work opportunities have opened up new avenues for income generation, allowing millennials to build multiple income streams that can potentially support them in retirement.

In contrast, older workers expect to depend more significantly on Social Security in retirement. Approximately one-third (30%) of Gen X 401(k) members, who are generally born between 1965 and 1980, said that Social Security would be their primary income source. Meanwhile, more than half (56%) of those who have retired rely primarily on Social Security for income, with just 7% using personal retirement funds as their major savings vehicle.

Many Americans rely on Social Security as their sole source of income in retirement, despite the fact that it was never intended to be that way. The program is presently facing a huge financial shortage, which might affect millions of retirees. According to a Congressional Budget Office prediction, seniors would only get 77% of their Social Security payments beginning in 2034 unless Congress acts sooner.

The looming Social Security crisis has sparked a national debate on the sustainability of the current retirement system. Experts argue that comprehensive reform is necessary to address the growing demographic challenges and ensure the long-term viability of Social Security. Proposed solutions range from raising the retirement age to increasing payroll taxes, but political gridlock has hindered meaningful progress. This uncertainty has further fueled millennials' desire to take control of their financial futures.

Millennials Get Proactive About Retirement Savings

While financial counselors anticipate Congress to address the Social Security deficit, they say younger generations are taking control of their retirement savings.

The majority of millennials (58%) expected personal retirement accounts to be their main source of income, compared to 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) of 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."

This proactive approach to retirement planning among millennials has led to a surge in financial literacy initiatives and technology-driven solutions. Robo-advisors and personal finance apps have gained popularity, offering accessible and affordable investment options for young savers. Furthermore, employers are increasingly recognizing the importance of robust retirement benefits in attracting and retaining millennial talent, leading to more comprehensive 401(k) plans and financial wellness programs in the workplace.

Pensions, which have fallen out of favor in recent decades, were formerly available to a larger number of workers. Pensions were expected to be the principal source of retirement income by just 5% of respondents, compared to 46% who thought it would be personal retirement funds.

"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 adviser at Harvest Financial Advisors, said. "The onus is more on the individual to make sure they are saving enough for retirement."

Now, when financial consultants like Dwyer meet with clients who are concerned about Social Security, they generate estimates that account for the probable 23% drop in payments.

The decline of traditional pension plans has coincided with a rise in financial education and awareness among millennials. Many young professionals are seeking out financial advisors earlier in their careers, recognizing the importance of long-term planning. This trend has led to a growing demand for personalized financial advice that takes into account the unique challenges and opportunities faced by the millennial generation, including student loan debt, delayed homeownership, and evolving career paths.

To compensate for the Social Security deficit, experts advocate saving more for retirement by working longer, lowering spending, taking advantage of retirement accounts such as 401(k)s and Roth IRAs, and waiting until beyond full retirement age to claim Social Security.