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You pay 6.2% of every paycheck into Social Security. Will it be there when you retire? Here is what Millennials and Gen Z actually need to know, minus the panic.
Every paycheck, 6.2% of your gross income disappears into Social Security (your employer pays another 6.2%, for a total of 12.4%). If you are self-employed, you pay the full 12.4% yourself. On a $70,000 salary, that is $8,680/year flowing into a system designed in 1935.
The natural question for anyone under 40: will Social Security actually be there when I retire? The short answer is yes — but probably at a reduced level. The long answer requires understanding how the system works, what the Social Security Administration (SSA) trustees actually project, and how to plan your retirement so Social Security is a bonus, not a necessity.
- Social Security will NOT go to zero. Even if Congress does nothing, ongoing payroll taxes will still fund roughly 77 to 80% of promised benefits after the trust fund depletes around 2033 to 2035. “Bankrupt” is the wrong word.
- Plan assuming you will receive 75% of your currently projected benefit. If you get more, great. If reform reduces benefits slightly, you are prepared. Check your projection at ssa.gov/myaccount.
- Delaying claiming from 67 to 70 adds 8% per year — a 24% permanent increase. This is the best guaranteed return in finance. The breakeven age is roughly 82. If your family has longevity, delay.
- Roth IRA withdrawals do NOT count toward the “combined income” threshold that triggers Social Security taxation. This is one of the most underappreciated reasons to use a Roth over a Traditional IRA.
- Your benefit is based on your 35 highest-earning years. Working fewer than 35 years pulls in zeros that drag down your lifetime average — even part-time work in slower years helps.
How Social Security works
Social Security is not a savings account. The money you pay in FICA taxes today does not sit in an account with your name on it — it pays benefits to current retirees. When you retire, the workers at that time pay for your benefits. This is called a pay-as-you-go system.
You earn credits. You need 40 credits (roughly 10 years of work) to qualify for retirement benefits. In 2025, one credit requires $1,810 in earnings — so $7,240 in annual income gives you all 4 credits for the year.
Your benefit is based on your highest 35 years of earnings. The SSA calculates your Average Indexed Monthly Earnings (AIME) and applies a progressive formula to determine your Primary Insurance Amount (PIA) — your monthly benefit at full retirement age.
Full retirement age (FRA) is 67 for anyone born after 1960 — which includes all Millennials and Gen Z. You can claim as early as 62 (with a permanent reduction of roughly 30%) or as late as 70 (with a permanent increase of 24% over your FRA benefit).
The benefit formula is progressive. Lower earners replace a higher percentage of their income. Someone earning $30,000/year might replace 55% of income from Social Security. Someone earning $150,000/year might replace only 25%.
Estimate your Social Security benefit
Social Security Benefit Estimator
Based on the SSA’s benefit formula. Assumes consistent earnings throughout your career. For your official projection, visit ssa.gov/myaccount.
The trust fund situation: what the numbers actually say
The Social Security Trust Fund currently holds roughly $2.7 trillion. But it is being drawn down because more people are retiring (Baby Boomers) than entering the workforce.
According to the 2024 Social Security Trustees Report:
| Scenario | What happens | Your benefit |
|---|---|---|
| Best case | Congress reforms before 2035 (raise payroll cap, adjust retirement age) | 100% of projected benefit |
| Most likely | Combination of higher taxes and modest benefit adjustments | 85 to 95% of projected |
| Worst case (no action) | Trust fund depletes ~2033 to 2035 — ongoing FICA taxes still pay benefits | 77 to 80% of projected |
| Planning recommendation | Conservative assumption regardless of outcome | Plan for 75% of projected |
The trust fund depletion is a funding shortfall, not an extinction event. Even if Congress takes zero action, ongoing payroll taxes from workers in 2035 will still fund roughly 77 to 80 cents of every dollar in promised benefits.
For historical context: Social Security faced a similar crisis in 1983. Congress passed bipartisan reforms (raised retirement age from 65 to 67, taxed benefits for higher earners, increased FICA rates). The system was solvent for another 50 years. A similar fix is the most probable outcome.
The claiming age decision: 62 vs 67 vs 70
Use the estimator above to see your specific numbers. Here is the framework for deciding when to claim:
| Claim at… | Benefit amount | Best if… |
|---|---|---|
| 62 | 70% of FRA benefit — permanent | Poor health or shorter expected lifespan; need income immediately; no other retirement income |
| 67 (FRA) | 100% of FRA benefit | Average health; uncertain longevity; want the middle ground |
| 70 | 124% of FRA benefit — permanent | Good health; family longevity; can live off other savings until 70; want maximum inflation-adjusted income |
The breakeven math: The breakeven age (when delaying from 67 to 70 pays off cumulatively) is roughly 80 to 82. A healthy 30-year-old today has a roughly 50% chance of living past 85, according to SSA actuarial tables. If longevity runs in your family, delaying to 70 is often the highest-value financial decision you can make — an 8% guaranteed annual return is unbeatable anywhere else.
Strategies that actually matter for younger workers
Max out retirement accounts first
Social Security is one leg of the retirement stool. Your 401(k) and IRA contributions are entirely within your control. Maximize them:
| Account | 2025 limit | Tax advantage |
|---|---|---|
| 401(k) | $23,500/year + employer match | Pre-tax or Roth growth |
| Roth IRA | $7,000/year | Tax-free growth and withdrawals |
| HSA | $4,300 individual / $8,550 family | Triple tax advantage |
If you max these accounts from age 25, you accumulate over $3 million by 65 at 7% average returns — before any Social Security. Social Security becomes a supplement, not a lifeline.
Earn for at least 35 years
Your benefit is based on your highest 35 years of earnings. If you work only 30 years, five years of zero earnings are averaged in, dragging down your benefit significantly. Even part-time income in years you might otherwise not work (sabbaticals, stay-at-home years, early retirement phases) fills gaps and increases your lifetime benefit.
Know the spousal benefit
If you are married, the lower-earning spouse can claim either their own benefit or 50% of the higher-earning spouse’s FRA benefit, whichever is greater. A non-working spouse can receive up to half of the working spouse’s benefit. This is important for couples where one partner earns significantly more or one partner takes years away from the workforce.
Factor Social Security into your FIRE number
If you are pursuing FIRE, Social Security kicks in decades after you retire. A FIRE retiree at 40 needs to fund 27 years before Social Security starts at 67. But from 67 onward, Social Security supplements your portfolio withdrawals and reduces the amount you need saved.
Example: You need $40,000/year in retirement. At 67, Social Security provides $20,000/year (at 75% of projected). From 67 onward, your portfolio only needs to provide $20,000/year — roughly half what it needed before. This Social Security bridge can reduce your required FIRE number by $400,000 to $500,000.
Social Security taxes: what you actually pay
| Tax | Employee rate | Employer rate | Cap (2025) |
|---|---|---|---|
| Social Security (OASDI) | 6.2% | 6.2% | $176,100 in earnings |
| Medicare (Part A) | 1.45% | 1.45% | No cap |
| Additional Medicare | 0.9% | $0 | Income over $200K single / $250K married |
One of the most commonly proposed reforms is raising or eliminating the $176,100 earnings cap. According to the Congressional Budget Office, eliminating the cap entirely would close roughly 70% of the long-term funding shortfall — making this the single most likely reform outcome.
Are Social Security benefits taxed?
Yes, depending on your “combined income” (adjusted gross income + non-taxable interest + half your Social Security benefit):
| Combined income | Taxable portion of SS benefit |
|---|---|
| Under $25,000 single / $32,000 married | 0% — not taxed |
| $25,000 to $34,000 single / $32,000 to $44,000 married | Up to 50% taxable |
| Over $34,000 single / $44,000 married | Up to 85% taxable |
This is a major reason the Roth IRA is so valuable: Roth withdrawals are NOT counted in the combined income calculation and do not trigger Social Security benefit taxation. A retiree pulling $30,000/year from a Roth IRA can potentially receive their full Social Security benefit tax-free, while someone pulling the same amount from a Traditional IRA may owe tax on 85% of their benefit.
Frequently Asked Questions
Will Social Security go bankrupt?
No — “bankrupt” implies the program pays $0, which is not what the projections show. Even if the trust fund is fully depleted around 2033 to 2035, ongoing payroll taxes from current workers will still fund roughly 77 to 80% of scheduled benefits. The program cannot run out of money entirely as long as workers pay FICA taxes, which is required by law. What the trust fund depletion means is a potential benefit reduction of 20 to 23% — significant, but very different from zero. And Congress has strong political incentive to act before that happens, as it did in 1983 when the program faced a similar crisis.
Should I factor Social Security into my retirement plan?
Yes — but conservatively. Do not plan around 100% of your projected benefit. Instead, use 75% of your currently projected benefit as your planning assumption. This accounts for the possibility of modest benefit reductions or reform changes while still giving Social Security its proper role in your retirement income plan. To see your official projected benefit, create an account at ssa.gov/myaccount. The statement shows estimated monthly benefits at ages 62, 67, and 70 based on your actual earnings history — far more accurate than any calculator.
At what age should I claim Social Security?
It depends on your health, life expectancy, other income sources, and whether you are married. The general framework: if you are in poor health or need the income immediately, claiming at 62 may make sense even with the 30% permanent reduction. If you are in average health and have other retirement income to live on, waiting until 67 (full retirement age) captures your full benefit. If you are in good health, have family longevity, and can live off savings until 70, delaying to 70 gives you a permanent 24% increase over your FRA benefit — and every year you live past the breakeven age of roughly 82, you come out ahead financially. For married couples, the higher earner should generally delay as long as possible, as the surviving spouse inherits the higher benefit.
I am self-employed. Do I still get Social Security?
Yes. Self-employment tax (15.3%) includes the full 12.4% Social Security tax plus 2.9% Medicare. Your benefits are calculated the same way as employees. You can deduct half of your self-employment tax on your federal return, but this does not reduce your Social Security earnings credits. File your taxes properly and report all self-employment income — the SSA uses your reported earnings to calculate your lifetime benefit, so underreporting income (common in cash businesses) directly reduces your future Social Security check.
What if I move abroad in retirement?
Social Security benefits are payable to US citizens living in most foreign countries. The SSA deposits benefits directly into your US bank account regardless of where you live. Some countries have restrictions (Cuba, North Korea, and a handful of others). If you are considering retiring abroad, this is worth confirming with the SSA before you move. Some countries also have Social Security totalization agreements with the US, which can affect your benefit calculation if you worked in both countries. The SSA provides a full list of countries with payment restrictions.
Can I opt out of Social Security?
No — with very narrow exceptions. Members of certain religious groups (Amish, some Mennonite communities) who conscientiously oppose insurance programs can apply for an exemption. Some state and local government employees are covered by alternative pension systems and may not pay into Social Security. But for the vast majority of workers, including all private sector employees and most federal employees hired after 1983, Social Security participation is mandatory. You pay FICA taxes on earned income regardless of whether you want to.
How does working while collecting Social Security affect my benefits?
If you claim before your full retirement age (67) and continue working, your benefit may be temporarily reduced if your earnings exceed certain thresholds. In 2025, for every $2 you earn above $22,320/year before FRA, $1 in benefits is withheld. In the year you reach FRA, the threshold rises to $59,520 and only $1 for every $3 is withheld. After you reach FRA, you can earn any amount without any reduction — there is no penalty for working and collecting simultaneously. Any withheld benefits are also credited back to you as a higher monthly payment once you reach FRA, so the reduction is not permanent.
Is Social Security a good investment compared to saving privately?
For most average earners, yes — Social Security provides features that are expensive to replicate privately: inflation-adjusted income for life (longevity insurance), spousal and survivor benefits, and disability insurance. The internal rate of return varies by earnings level and lifespan, but average earners who live to typical life expectancies typically get a reasonable return. What Social Security cannot do is provide a middle-class retirement on its own — it was designed to replace 30 to 40% of pre-retirement income, not 100%. Think of it as a guaranteed inflation-adjusted income floor that your 401(k) and IRA are built on top of, not a replacement for personal savings.
The bottom line
Social Security will exist when Millennials and Gen Z retire. The trust fund depletion is a funding gap, not an extinction event. The most likely outcome is a reform package that adjusts taxes and benefits modestly — similar to the 1983 reforms that kept the system solvent for another 50 years.
But betting your retirement entirely on Social Security is a mistake regardless of the reform outcome. The system was designed to replace 30 to 40% of pre-retirement income, not 100%. The rest comes from your 401(k), Roth IRA, HSA, and personal savings.
Use the estimator above to see your projected benefit. Plan for 75% of that number. Max your retirement accounts. Invest in index funds for 30+ years. If Social Security delivers more than you planned for, you are ahead. If it delivers less, you are still fine. That is what financial security actually looks like.
Start building your own retirement safety net
Next steps:
- Not yet investing for retirement? Read our beginner investing guide — step-by-step from $1,000 to a full retirement portfolio.
- Choosing between Roth and Traditional IRA? Read our Roth vs Traditional comparison — includes the Social Security tax interaction explained in full.
- Pursuing early retirement (FIRE)? Read our FIRE movement guide — how Social Security fits into a retirement that starts at 40.
