Millennials can count on Social Security after all

Are you convinced the Social Security system is on life support, not long for this world? You are not alone.

Eighty percent of millennial workers say they are worried Social Security won't be there for them, according to a 2017 study by the Transamerica Center for Retirement Studies, which counts millennials as those born from 1979 to 2000.

You can relax: There is "zero doubt that Social Security will be there for millennials," said Dean Baker, a senior economist at the Center for Economic and Policy Research.

Even if nothing is done to shore up the system, Baker said people retiring in 30 to 40 years can count on about 10 percent more money, in inflation-adjusted dollars, from Social Security than what today's beneficiaries get.

That's even though the system is projected to be able to pay only 75 percent of benefits starting in 2035 when the Social Security Trust Fund will deplete its reserves, according to estimates by the Social Security Administration.

How can that be?

It's because future benefits increase at a rate that outpaces inflation.

"Even if benefits are not paid in full, the average retiree in 30 years will be able to buy about 10 percent more with their Social Security check than a retiree today," Baker says.

Andrew Biggs, a resident scholar at the American Enterprise Institute, agrees. "Even if Social Security benefits were cut by 25 percent when the trust fund runs out, the real value of those benefits would still be higher than what's received by today's retirees," he says.

If you are still worried about that depleted trust fund, consider this: Payroll taxes pay for most of retirees' paychecks.

"People confuse the exhaustion of the trust fund with the end of the program," says Alicia Munnell of Boston College's Center for Retirement Research. "Even once the trust fund is gone, payroll taxes themselves, already in place, can pay 75 percent of benefits."

There is one major caveat, however: The percentage of your pre-retirement income that Social Security benefits will replace decades from now likely will be lower than what retirees today enjoy.

The so-called replacement rate for an average-earning 65-year-old retiring in 2035 is expected to drop to 36 percent, from 39 percent in 2015, based on data compiled by the Center for Retirement Research.

That's assuming there are no cuts to benefits. If there are, the replacement rate would drop more.

"What you care about in retirement isn't just the absolute level of your retirement income," Biggs says. "You care about how your retirement income compares to your pre-retirement earnings."

The drop in replacement rate is due to a variety of factors, including an increase in the retirement age, instituted in 1983, which effectively is a benefit cut. People born in 1937 could claim full benefits at 65, but the age to receive full benefits has slowly risen. It's 67 for anyone born in 1960 or later.

No matter what happens, remember that Social Security isn't meant to be your sole source of retirement savings. Set a goal to save 15 percent of your income. If you are wondering if you are on track, plug your numbers into a retirement calculator. If you find you are not saving enough, then consider increasing your 401(k) contributions or opening an IRA.

Andrea Coombes is a writer at NerdWallet. E-mail: acoombes@nerdwallet.com.