Social Security and FIRE

[Trooper]

I'm in the population of 'getting close to retirement', and I am using the various online calculators and my own spreadsheets to see how quickly I can pull the plug.

When modeling Social Security benefits do you assume that the system will be solvent during the full duration of your retirement? Or assume that you will only receive a certain portion of the benefit that the ssa.gov calculators provide?

We plan to start collecting at FRA (66ish), but my wife keeps telling me that we shouldn't count on it being there. I guess one way would be to model various social security benefit levels, and see what the sensitivities to our plan are.

Thoughts?

 

[Independent]

Here's a poll with 183 responses: http://www.early-retirement.org/forums/f28/are-you-expecting-social-security-56869.html

Note that the poll specified "best guess", which is different from "conservative assumption I'd use in a model".

 

[TallTim]

It really is a function of how much time you want to put into it ... both making sure that you've properly estimated the benefits (leaving early, even if you collect late can reduce amounts payable).

There are many threads here on the topic, so a search might yield useful info.

If you want a back-of-the-envelope approach, I have seen several places the idea that the system will be something like 70% solvent after 2040 or so ... so one approach might simply be to assume receipt of 70% of your FRA amounts.

 

[Katsmeow]

Since you are apparently 56 (from another post) and assuming your wife is similar age, you probably fit within the group of people that shouldn't expect huge changes. When I was 56 (4 years ago) I ran projection both with SS and with a lesser amount (I think 50%, don't recall). Four years later, with DH actually collecting SS and me about to turn 60 I use the actual numbers. But, I am aware that things could change somewhat but I'm not expecting SS to just entirely vanish so I don't model that.

 

[Trooper]

Thanks Independent. I did a quick search but obviously missed the thread you provided.

 

[ImThinkin2019]

Hi Trooper-
I used 75% in my initial calculations, because that's what it said on the bottom of my Social Security statement at the time.
Finally, now that I'm getting much closer, I purchased ES Planner software to make the estimate, and also help me plan. I bought this because Dr. Kotlikoff is an expert in Social Security. He's invested a lot of research into the topic, and has had many discussions with the Social Security administrators. So I figured his estimates would be the best, and those are what is in ES Plannner.
In order to be conservative, I use his estimates. But in order to buffer our portfolio, I took some of our savings "off the table" and don't use them in our planning. That chunk of money will be there in the future if we need it.
Good luck with your plans and see you on the other side!!

 

[pb4uski]

...When modeling Social Security benefits do you assume that the system will be solvent during the full duration of your retirement? Or assume that you will only receive a certain portion of the benefit that the ssa.gov calculators provide?.........Thoughts?

I put on a 10% haircut in my planning (I'm currently 58), though my plan would still be solvent with as much as a 40% haircut with all other assumptions held constant.

I think the actual benefits will be close to advertised for folks close to 62, in part because our Congress has no political courage. If they can't agree on chained CPI which would only reduce benefits by roughly 1/4% a year I find it hard to fathom them doing something more drastic.

I use Quicken Lifetime Planner and it provides for a specific assumption for a haircut percentage and you can use its What-If tool to look at alternatives.

 

[Trooper]

Thanks everyone - this is a great start.

 

[Chuckanut]

I was very conservative and figures SS would be 20% less than predicted starting from day one when I get it. In reality, I will probably get 100% on day one, and for at least 12 years after that. But, I figure it's better to be surprised on the upside and than the downside.

 

[Turboslacker]

I'm assuming 100% until the government tells me otherwise. If it changes oh well I will simply adjust.

 

[CaliforniaMan]

I'm assuming 100% until the government tells me otherwise. If it changes oh well I will simply adjust.

+1
There are a lot of us 'old folks', i.e. those receiving or ready to receive our benefits, and unlike the younger ones, we do vote. I am not expecting SS to go away in my lifetime.

 

[OAG]

I am in my 6th year of SS payments (7th year begins in May). I always assumed the system would be there for me - and except for the minor impact of means testing it is/was. What happens in the future no one knows.

 

[AllDone]

SS celebrates its 80th birthday next year. The German version is about 150 years old. SS has a assets and dedicated revenue stream that, if left unchanged, will cover 100% of it's outlay until 2041 (as projected by their actuaries who have been quite accurate in the past) and then 85% or so after that. It's incredibly unlikely that Congress would not choose to make up any shortfall at that point (old people vote). There are multiple minor tweaks that could be applied to eliminate the shortfall which will eventually go away on it's own as we boomers shuffle off to the rainbow bridge.

I'm a couple of years younger than you and unconcerned. There have been times in the past when shortfalls have been predicted to occur much sooner than the current one. That being said, our burn rate dwarfs our expected SS....

 

[Alan]

I'm 59 and assuming 100%, although I will be losing the max allowed by WEP since I have UK pensions and UK SS.

 

[racy]

SS will be there. The government is in the business of providing more & more, year after year, not taking things away....regardless of solvency.

 

[W2R]

I am 66, so I am pretty sure I will get 100% of the SS promised. I'm not so sure, though about taxation of it or about fiddling with the COLAs.

When I did my retirement planning, I was younger and I wasn't so sure. I made sure to plan retirement income streams from at least five different directions, SS being one of them. I made sure that any one of them could disappear and I could still manage.

 

[pb4uski]

Was doing retirement plan for 30 yo DD yesterday. She thinks it will be nothing for her. I told her I didn't think so but I can understand why she thinks that way since it is so much of a mess. We finally decided on an 80% haircut but I still think that is too much bit if it is better it is gravy.

 

[Gumby]

Since I first started serious financial planning 30 years ago, I have assumed zero for SS. In light of current circumstances, I expect that I probably will receive all or most of what has been promised. But my model still has a big zero in it -- better to be pleasantly surprised than stuck with inadequate funding in retirement.

 

[growing_older]

I made sure to plan retirement income streams from at least five different directions, SS being one of them.

This seems like an excellent idea, but I am baffled about what the five (or more) streams could be. Maybe this makes me more concerned about SS because it's one of my few possible income sources.

1. Personal savings (401k, IRA and taxable accounts)
2. Social Security
3. If desperate, reverse mortgage or sell house

I tried landlord (rental income) but didn't like it and too much like a job to enjoy after ER.

Pensions always got terminated or company folded before anything vested.

Side business. Tried a few and made small incomes, but again too much like a job to do long term.

Royalty from books, etc. Maybe I need to get busy and write a book? I'm running out of ideas for "income streams" and would appreciate any pointers.

 

[longranger]

So at 57 I and DW(58) are supposedly going to get full benefits at least while SS remains solvent. Just how sure are we Politics and SS solvency aside the longer the National deficit and inequity in income distribution grow the higher the likelihood that SS and any other government administered entitlements will become subject to MEANS TESTING. That would put a quick kink in many of our plans. By definition those of us who can FIRE are likely to be prime targets for benefit cuts. No one will care that you achieved what you did by LBYM and working harder than most. We will be lumped with the "evil 1%" because on paper looking at $$ only we are.

 

[W2R]

This seems like an excellent idea, but I am baffled about what the five (or more) streams could be. [...]I'm running out of ideas for "income streams" and would appreciate any pointers.

What you set up as income streams probably depends more on your particular, individual situation and what you have made available to you than anything else. The five income streams that I personally have available to me are,

1. FERS pension
2. SS
3. TSP G Fund (cannot decrease in share price, set up for regular monthly payments similar to a second pension)
4. Dividends from normal taxable investment accounts at Vanguard
5. SPIA

I have temporarily delayed setting up the SPIA until I am older and can get a better rate. However, when I was younger and doing my retirement planning rates were higher and this was planned to be a (small) part of my retirement income right from the start. See my original post as the phrase you extracted was referring to past planning only.

Many of our forum members have more than one pension; several have two or three. Frozen or not, even a little pension provides some flexibility and diversification in income streams. Some have real estate or royalty income. Some have part time jobs. Some have disability or spousal or survivors' benefits. Some have alimony or child support (I never had either).

 

[Tadpole]

So at 57 I and DW(58) are supposedly going to get full benefits at least while SS remains solvent.

As long as the payroll tax is collected, SS cannot go insolvent even if the SS Trust Fund is not honored.

 

[Alan]

This seems like an excellent idea, but I am baffled about what the five (or more) streams could be. Maybe this makes me more concerned about SS because it's one of my few possible income sources.

1. Personal savings (401k, IRA and taxable accounts)
2. Social Security
3. If desperate, reverse mortgage or sell house

I tried landlord (rental income) but didn't like it and too much like a job to enjoy after ER.

Pensions always got terminated or company folded before anything vested.

Side business. Tried a few and made small incomes, but again too much like a job to do long term.

Royalty from books, etc. Maybe I need to get busy and write a book? I'm running out of ideas for "income streams" and would appreciate any pointers.

In our case the income streams are

2 US private pensions

2 UK private pensions

US SS for DW

US SS for myself

UK SS for myself

Withdrawals from DW retirement IRA's/401k's

Withdrawals from my retirement IRA's/401k's

Withdrawals from joint after-tax accounts

 

[samclem]

SS will be there. The government is in the business of providing more & more, year after year, not taking things away....regardless of solvency.

I think it's likely that the SS payments will be made as promised for those at/near retirement, but there might be some reduction in the benefits earned by future payments for younger workers at some point.
But, I also think it's likely that "wealthier" retirees will see some clawback of SS payments, possibly soon, via increased taxation of these SS benefits (the amount of SS payments subject to taxation, the loss of other subsidies and tax breaks as income climbs, increased taxation of SS benefits for those who choose to work even after FRA, perhaps even a special higher tax rate on SS benefits phased in at higher income levels, etc). This could result in significantly reduced net SS benefits while politicians can still claim "the promise was kept, everyone got the checks they were promised." If these special/added taxes are ostensibly funneled back to SS in order to "save it", I think these changes would have popular support--it's only the rich old people who have had it so good who would be paying.
I'm in my early 50's and guessing I'll have an approx 20% SS haircut after all the shenanigans.

 

[longranger]

I agree Samclem. Just how deep the shenanigans may go, if it happens at all, is hard to predict. Depends on the economy,politics etc.. Call it Means Testing, special tax or whatever creative name is applied the wealthy will be the first to be effected.