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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 that was 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 that Social Security is a bonus, not a necessity.
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. You can earn up to 4 credits per year. In 2025, one credit requires $1,810 in earnings, so $7,240 in annual earnings gives you all 4 credits.
Your benefit is based on your highest 35 years of earnings. The SSA takes your 35 highest-earning years (adjusted for inflation), calculates your Average Indexed Monthly Earnings (AIME), and applies a formula to determine your Primary Insurance Amount (PIA), which is your monthly benefit at full retirement age.
Full retirement age (FRA) is 67 for anyone born after 1960. That 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 pre-retirement income. Someone earning $30,000/year might replace 55% of their income from Social Security. Someone earning $150,000/year might replace only 25%.
The trust fund situation: what the numbers actually say
The Social Security Trust Fund (officially the Old-Age and Survivors Insurance 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:
The trust fund is projected to be depleted around 2033 to 2035. This does not mean Social Security disappears. It means the trust fund surplus runs out.
After depletion, ongoing payroll taxes will still cover roughly 77 to 80% of scheduled benefits. Even if Congress does absolutely nothing, workers in 2035 will still pay FICA taxes, and those taxes will fund roughly 77 to 80 cents of every dollar in promised benefits. Social Security does not go to zero. It faces a funding shortfall.
Congress has strong incentive to act. Social Security beneficiaries are the largest voting block in America. Cutting benefits is politically catastrophic. The far more likely outcome is a combination of reforms: raising the payroll tax cap, gradually increasing the full retirement age, modestly reducing benefits for high earners, or some mix of all three.
For historical context: Social Security faced a similar crisis in 1983. Congress passed bipartisan reforms (raised the 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.
What Millennials should actually expect
Best case: Congress acts before 2035 with a reform package (likely raising the payroll tax cap and/or modestly increasing the retirement age to 68 or 69). Benefits are preserved at or near current levels.
Most likely case: Some combination of higher taxes and modestly reduced benefits. You receive 85 to 95% of your currently projected benefit.
Worst case (doing nothing): Benefits are automatically cut to roughly 77% of scheduled amounts when the trust fund is depleted. This is the default outcome if Congress takes zero action.
Planning recommendation: Plan your retirement assuming you will receive 75% of your currently projected Social Security benefit. If you get more, great. If you get less, you are prepared.
You can check your projected benefit at my Social Security (create an account with the SSA). The projection shows your estimated monthly benefit at ages 62, 67, and 70 based on your actual earnings history.
How much you might receive
Social Security benefits in 2025 for someone retiring at full retirement age (67):
Average benefit: roughly $1,970/month ($23,640/year) Maximum benefit (earned at the taxable maximum for 35+ years): roughly $4,018/month ($48,216/year)
For a Millennial earning $80,000/year consistently, the projected benefit at 67 is roughly $2,300 to $2,500/month in today’s dollars (benefits are inflation-adjusted). At 75% of projected benefits, that is roughly $1,725 to $1,875/month.
That is meaningful income but not enough to maintain a middle-class lifestyle on its own. This is why your 401(k), Roth IRA, and personal savings matter so much.
The strategies that actually matter for younger workers
Max out your 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:
- 401(k): $23,500/year (2025) with potential employer match
- Roth IRA: $7,000/year
- HSA: $4,300/year (individual) or $8,550 (family)
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.
Understand the claiming age decision
Claiming at 62 vs. 67 vs. 70 dramatically changes your lifetime benefit:
At 62: You receive roughly 70% of your FRA benefit. On a $2,500 FRA benefit, that is $1,750/month. You get smaller checks for more years.
At 67 (FRA): You receive 100% of your benefit: $2,500/month.
At 70: You receive 124% of your FRA benefit: $3,100/month. Every year you delay past FRA adds 8% to your benefit. That is the best guaranteed return in finance.
The breakeven age (when delaying pays off vs. claiming early) is roughly 80 to 82. If you expect to live past 82, delaying to 70 maximizes your lifetime benefit. Given that a healthy 30-year-old today has a roughly 50% chance of living past 85, delaying is often the right call.
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. Even part-time income in years you might otherwise not work (sabbaticals, early retirement, stay-at-home years) can fill gaps and increase 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. This means 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 where one partner stays home.
Factor Social Security into your FIRE number
If you are pursuing FIRE (Financial Independence, Retire Early), 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, reducing the amount you need saved.
Example: You need $40,000/year in retirement. At 67, Social Security provides $20,000/year (at 75% projected benefit). From 67+, your portfolio only needs to provide $20,000/year. This “Social Security bridge” can reduce your required FIRE number by $500,000+ using the Roth conversion ladder to bridge the gap.
Social Security taxes: what you actually pay
FICA tax rate: 6.2% (employee) + 6.2% (employer) = 12.4% total. Self-employed pay the full 12.4% (half is deductible).
Taxable earnings cap (2025): $176,100. You only pay Social Security tax on the first $176,100 of earnings. Income above that is not subject to Social Security tax (but is still subject to Medicare tax).
Medicare tax: An additional 1.45% (employee) + 1.45% (employer) = 2.9% total, with no earnings cap. High earners pay an extra 0.9% on earnings over $200,000 (single) or $250,000 (married filing jointly).
One of the most commonly proposed reforms is raising or eliminating the $176,100 cap, which would significantly extend the trust fund’s solvency. According to the Congressional Budget Office, eliminating the cap entirely would close roughly 70% of the long-term funding shortfall.
Are Social Security benefits taxed?
Yes, depending on your income. If your “combined income” (adjusted gross income + non-taxable interest + half your Social Security benefit) exceeds:
$25,000 (single) or $32,000 (married filing jointly): Up to 50% of your Social Security benefit is taxable.
$34,000 (single) or $44,000 (married filing jointly): Up to 85% of your benefit is taxable.
Most retirees with significant 401(k) withdrawals or other income will pay tax on 85% of their Social Security benefit. This is another reason the Roth IRA is so valuable: Roth withdrawals are not counted in the combined income calculation and do not cause Social Security benefits to be taxed.
Frequently asked questions
Will Social Security go bankrupt? No. Even if the trust fund is depleted, ongoing payroll taxes fund roughly 77 to 80% of benefits indefinitely. “Bankrupt” implies $0, which is not what the projections show. A benefit reduction of 20 to 23% is the worst-case scenario, and Congress is likely to act before that.
Should I factor Social Security into my retirement plan? Yes, but conservatively. Plan assuming 75% of your projected benefit. Use the my Social Security calculator to see your projected benefit, then apply a 25% discount.
I am self-employed. Do I still get Social Security? Yes. Self-employment tax (15.3%) includes the full 12.4% Social Security tax. Your benefits are calculated the same way as employees. Deducting half of self-employment tax on your return does not reduce your Social Security credits. File your taxes properly and report all income to maximize your benefit.
What if I move abroad in retirement? Social Security benefits are payable to US citizens living in most foreign countries. Some countries have restrictions (North Korea, Cuba, etc.). The SSA provides a list of countries with payment restrictions. Benefits are deposited directly into your US bank account regardless of where you live.
Can I opt out of Social Security? No (with very rare exceptions for certain religious groups and some state/local government employees covered by alternative pension systems). If you earn income, you pay FICA taxes.
Is Social Security a good deal? For most workers, yes. The internal rate of return varies, but for average earners, Social Security provides inflation-adjusted income for life, spousal and survivor benefits, and disability insurance. Replicating these features with private insurance would cost more for most people.
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.
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.
Plan for 75% of your projected benefit. 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.
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