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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 goes 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 about $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 longer answer requires understanding how the system works, what the Social Security Administration (SSA) trustees project, and how to plan so Social Security is a bonus, not a necessity. It is one leg of the stool described in our retirement accounts hub.
- Social Security will not go to zero. Even if Congress does nothing, ongoing payroll taxes would still fund roughly 80% of scheduled benefits after the trust funds are projected to deplete in the mid-2030s. “Bankrupt” is the wrong word.
- A reasonable planning move is to assume you will receive about 75% of your currently projected benefit. If you get more, great; if reform trims benefits, you are prepared. Check your projection at ssa.gov/myaccount.
- Delaying claiming from 67 to 70 adds 8% per year, a 24% permanent increase. The breakeven age is roughly 82, so if longevity runs in your family, delaying often pays off.
- Roth IRA withdrawals do not count toward the “combined income” that triggers taxation of Social Security benefits, which is one underappreciated reason to favor a Roth.
- Your benefit is based on your 35 highest-earning years. Working fewer than 35 years pulls in zeros that drag down your average, so even part-time work in slower years helps.
How does Social Security work?
Social Security is not a savings account. The FICA taxes you pay today do not sit in an account with your name on it; they pay benefits to current retirees. When you retire, the workers at that time pay for your benefits. This is a pay-as-you-go system.
You earn credits. You need 40 credits (about 10 years of work) to qualify for retirement benefits. In 2026, one credit requires $1,890 in earnings, so $7,560 in annual income earns all 4 credits for the year (SSA).
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 about 30%) or as late as 70 (with a permanent increase of 24% over your FRA benefit).
The formula is progressive. Lower earners replace a higher percentage of their income. Someone earning $30,000/year might replace about 55% from Social Security, while someone earning $150,000/year might replace only about 25%.
Estimate your Social Security benefit
Social Security Benefit Estimator
Based on the SSA’s 2026 benefit formula and assuming consistent earnings. For your official projection, visit ssa.gov/myaccount.
What do the trust fund numbers actually say?
The Social Security trust funds hold trillions of dollars, but they are being drawn down because more people are retiring (Baby Boomers) than entering the workforce. According to the 2025 Social Security Trustees Report, the combined trust funds are projected to be depleted around 2034.
| Scenario | What happens | Your benefit |
|---|---|---|
| Best case | Congress reforms before depletion (raise the payroll cap, adjust the retirement age) | 100% of projected benefit |
| Most likely | A mix of higher taxes and modest benefit adjustments | 85 to 95% of projected |
| Worst case (no action) | Trust funds deplete mid-2030s; ongoing FICA taxes still pay benefits | About 80% of projected |
| Planning recommendation | Conservative assumption regardless of outcome | Plan for 75% of projected |
Depletion is a funding shortfall, not an extinction event. Even with zero action from Congress, payroll taxes from future workers would still fund roughly 80 cents of every promised benefit dollar.
For historical context: Social Security faced a similar crisis in 1983. Congress passed bipartisan reforms (raising the retirement age from 65 to 67, taxing benefits for higher earners, increasing FICA rates), and the system stayed solvent for decades. A comparable fix is the most probable outcome.
When should you claim: 62, 67, or 70?
Use the estimator above to see your numbers. Here is the framework for deciding when to claim:
| Claim at… | Benefit amount | Best if… |
|---|---|---|
| 62 | About 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 about a 50% chance of living past 85, per SSA actuarial tables. If longevity runs in your family, delaying to 70 is often one of the highest-value financial decisions available, since the increase is effectively a guaranteed 8% per year.
What strategies matter most 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, so maximize them:
| Account | 2026 limit | Tax advantage |
|---|---|---|
| 401(k) | $24,500/year + employer match | Pre-tax or Roth growth |
| Roth IRA | $7,500/year | Tax-free growth and withdrawals |
| HSA | $4,400 individual / $8,750 family | Triple tax advantage |
Consistently maxing these accounts from your mid-20s can build a seven-figure portfolio by 65 at historical average returns, well before any Social Security. The goal is to make Social Security a supplement, not a lifeline.
Earn for at least 35 years
Your benefit is based on your highest 35 years of earnings. Work only 30 years and five zeros are averaged in, dragging the benefit down. Even part-time income in years you might otherwise not work (sabbaticals, stay-at-home years, early-retirement phases) fills gaps and raises your lifetime benefit.
Know the spousal benefit
If you are married, the lower-earning spouse can claim either their own benefit or up to 50% of the higher earner’s FRA benefit, whichever is greater. A non-working spouse can receive up to half of the working spouse’s benefit. This matters most when one partner earns significantly more or 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 the years until 67 entirely from a portfolio, but from 67 onward Social Security supplements withdrawals and reduces how much you need saved.
Example: you need $40,000/year in retirement. At 67, Social Security might provide $20,000/year (at 75% of projected). From 67 onward, your portfolio only needs to provide the other $20,000/year, roughly half what it covered before. This Social Security bridge can meaningfully reduce your required FIRE number.
What do you actually pay in Social Security taxes?
| Tax | Employee rate | Employer rate | Cap (2026) |
|---|---|---|---|
| Social Security (OASDI) | 6.2% | 6.2% | $184,500 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 $184,500 earnings cap. According to the Congressional Budget Office, eliminating the cap entirely would close a large share of the long-term funding shortfall, which is why it is among the most discussed fixes.
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 |
These thresholds are not indexed for inflation, so more retirees cross them over time. 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 benefit taxation. A retiree pulling $30,000/year from a Roth IRA can potentially receive their full Social Security benefit tax-free, while the same withdrawal from a Traditional IRA could make up to 85% of the benefit taxable. See Traditional vs Roth IRA for the full comparison.
Frequently Asked Questions
No. “Bankrupt” implies $0 benefits, which is not what the projections show. Even if the trust funds deplete in the mid-2030s, ongoing payroll taxes would still fund roughly 80% of scheduled benefits, because workers keep paying FICA by law. The realistic risk is a benefit reduction of around 20%, not zero, and Congress has strong incentive to act first, as it did in 1983.
Yes, but conservatively. Rather than planning around 100% of your projected benefit, use about 75% as your assumption. That accounts for possible modest reductions while still giving Social Security its proper role. Create an account at ssa.gov/myaccount to see your official estimate at 62, 67, and 70 based on your real earnings, which is more accurate than any calculator.
It depends on health, life expectancy, other income, and marital status. Poor health or an immediate income need can favor claiming at 62 despite the roughly 30% reduction. Average health with other income often points to 67. Good health and family longevity favor delaying to 70 for a permanent 24% increase, and every year past the breakeven age of about 82 you come out ahead. For couples, the higher earner usually benefits from delaying, since the survivor inherits the larger benefit.
Yes. Self-employment tax (15.3%) includes the full 12.4% Social Security tax plus 2.9% Medicare, and benefits are calculated the same way as for employees. You can deduct half of the self-employment tax on your return, but that does not reduce your earnings credits. Report all self-employment income, since the SSA uses your reported earnings to calculate your benefit.
Social Security benefits are payable to US citizens living in most foreign countries, deposited into your US bank account regardless of where you live. A few countries have restrictions. Some countries also have totalization agreements with the US that can affect your calculation if you worked in both. Confirm with the SSA before relocating.
For nearly everyone, no. Narrow exceptions exist for members of certain religious groups that conscientiously oppose insurance programs, and some state and local government workers covered by alternative pension systems. For the vast majority of workers, participation is mandatory and FICA is withheld on earned income.
If you claim before FRA (67) and keep working, benefits may be temporarily reduced above certain earnings limits. In 2026, $1 in benefits is withheld for every $2 earned above $24,480 before FRA; in the year you reach FRA, the threshold rises to $65,160 with $1 withheld per $3. After FRA, there is no reduction, and any withheld benefits are credited back as a higher monthly payment.
For most average earners, it provides features that are expensive to replicate: inflation-adjusted income for life, spousal and survivor benefits, and disability insurance. The internal return varies by earnings and lifespan. What it cannot do is fund a middle-class retirement alone, since it was designed to replace only 30 to 40% of pre-retirement income. Treat it as a guaranteed income floor your savings build on top of.
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, and the most likely outcome is a reform package that adjusts taxes and benefits modestly, much like 1983.
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 about 75% of it, max your retirement accounts, and invest consistently for the long run. If Social Security delivers more than you planned for, you are ahead; if it delivers less, you are still fine. For the latest benefit-increase news, see our Social Security COLA 2027 coverage.
Disclosure: the link below is an affiliate link. We may earn a commission at no cost to you if you open an account through it.
- New to retirement accounts? Start with our hub, Retirement Accounts Explained.
- Choosing between Roth and Traditional? Read our Traditional vs Roth IRA guide, including the Social Security tax interaction.
- Pursuing early retirement (FIRE)? Read our FIRE movement guide for how Social Security fits a retirement that starts at 40.
A quick note: this article is for educational purposes only and is not financial advice. Social Security figures come from the SSA and apply to 2026; benefit projections depend on future earnings, claiming age, and possible reforms. Check your personal estimate at ssa.gov/myaccount, and consider speaking with a qualified financial advisor about your plan.
