Does your retirement planning account for Social Security insolvency?

[ERhoosier]

No. Social Security is still the third rail of American politics (i.e. touch it and see your political career die).. Our Congresscritters will find a way to “save” Social Security just in time for an election. ....

I'm not sure that traditional advice holds 100% anymore. Too many politicians now seem like they would throw constituents under the bus just to have another issue to beat the opposition over the head with. In this case- torpedo any SS rescue deal just to be a able to blame the other Party

 

[2177V]

SS is extra money that I really do not need for my monthly expenses. I am using it to fund my grandkids college education. If I get cut off, then my grandkids will depend on my own children to fund their college. I am hoping that will occur after my grandkids finish college.

 

[eyenitnoy]

Hi,

I'm counting on receiving Social Security in retirement. The recent 2021 Social Security Trustees report now says the Old-Age and Survivors Insurance part of Social Security will only be able to pay 76% of benefits as of 2034. I assume one of the worst case scenarios, that politicians won't do anything about this and benefits will be reduced.

To account for this in my planning I use a calculation like this:

(Amount I expect to receive between now and 2033 +
76% of amount I expect to receive between 2034 and death) / years of retirement

I allocate the result of this calculation to the "income" side of my expenses calculation. I don't do anything about cost of living adjustments.

Are any of you accounting for a benefits reduction in your retirement planning? How are you doing it?

Thanks,

--
Dan

While it is good to be cautious, I think it is close to certain that there will NOT be a benefit reduction for anyone in or older than their mid 40's as of right now.

Why? The government will increase payroll taxes, increase the amount of income subject to the tax, reduce benefits for younger people or some mix of the above to prevent insolvency.

They won't do anything, of course, for at least a few more years. And every proposal floated always has a 10 year window for folks near retirement. These folks are ALWAYS grandfathered in. Thus, my thinking is this:

Current insolvency date-2033.
They will probably cut a year or two off of this as time goes forward.
So let's say congress finally acts to fix things around 2030, near the insolvency date.
They grandfather in anyone 57 or over (10 years from the full retirement date) in 2030.
Thus, they grandfather in anyone born before 1973.
But, lets be conservative, and say they make it 1975.

Thus, it seems unlikely to me that anyone currently over 46.

Of course, if you are a teenager, in your 20s, or in your 30s there very well might be a cut. But more likely, these age groups will just pay a lot more in taxes for a similar, or modestly reduced benefit.

 

[Out-to-Lunch]

They grandfather in anyone 57 or over (10 years from the full retirement date) in 2030.
Thus, they grandfather in anyone born before 1973.
But, lets be conservative, and say they make it 1975.

Thus, it seems unlikely to me that anyone currently over 46.

Making the age for unharmed individual older does not strike me as "conservative." I would have expected to read: "Thus, they grandfather in anyone born before 1973. But, let's be conservative, and say they make it 1971."

 

[2177V]

Hi,

I'm counting on receiving Social Security in retirement. The recent 2021 Social Security Trustees report now says the Old-Age and Survivors Insurance part of Social Security will only be able to pay 76% of benefits as of 2034. I assume one of the worst case scenarios, that politicians won't do anything about this and benefits will be reduced.

To account for this in my planning I use a calculation like this:

(Amount I expect to receive between now and 2033 +
76% of amount I expect to receive between 2034 and death) / years of retirement

I allocate the result of this calculation to the "income" side of my expenses calculation. I don't do anything about cost of living adjustments.

Are any of you accounting for a benefits reduction in your retirement planning? How are you doing it?

Thanks,

--
Dan

Did that 76% SS report accounted for 600,000 plus Americans who died of COVID-19?

Assuming $12,000 a year of SS less payouts, this is equal to $8300000000 or $8.3 billion saved each year.

 

[eyenitnoy]

Making the age for unharmed individual older does not strike me as "conservative." I would have expected to read: "Thus, they grandfather in anyone born before 1973. But, let's be conservative, and say they make it 1971."

I meant conservative from a planning standpoint not a policy standpoint. By making the grandfather age those born before 1975, fewer individuals are grandfathered in, thus making the retirement planning more conservative.

Sorry for not being clearer.

My overarching point is that the government will make changes to the program to prevent insolvency, will wait as long as possible before doing so, and will grandfather in those within ten years of their full retirement date when they do finally get around to fixing the program.

So, anyone in their mid 40s right now should be safe.

Anyone under that age, not so much. More taxes will be forthcoming with modestly lower benefits for this age group...but, they do at least have more time to plan for these changes.

 

[eyenitnoy]

Did that 76% SS report accounted for 600,000 plus Americans who died of COVID-19?

Assuming $12,000 a year of SS less payouts, this is equal to $8300000000 or $8.3 billion saved each year.

The number would actually be based on the net increase in overall mortality, not the raw number of Covid cases. But your point is well taken and interesting.

 

[Closet_Gamer]

We are cautious in all of our planning.

We assume zero SS.

We also assume that all of our spending, including discretionary spending, is flat across the whole of the retirement plan on an inflation-adjusted basis.

Both of these are likely to be untrue but I consider them to be an easy way to build survivability into the plan.

 

[Badger]

We have been taking SS for the past 9-10 years but if it disappeared tomorrow we had already planned years before to not rely on anyone, any company, or government for our survival. None of them really care what happens to us so we made sure we could take care of ourselves.


Cheers!

 

[ncbill]

I assume I'll get 100% of my benefit but I was not a high income earner and stopped paying SS taxes well before I hit the second bend point...it's higher earners who even now get little credited to their monthly check once past the second bend point.

 

[USGrant1962]

Did that 76% SS report accounted for 600,000 plus Americans who died of COVID-19?

Assuming $12,000 a year of SS less payouts, this is equal to $8300000000 or $8.3 billion saved each year.

I suppose the professional actuaries that do the analysis for the Trustees know about Covid-19 effects, including the massive loss of payroll taxes. Incorporating Covid-19 effects is what they blamed the delay in the report on.

FWIW, $8.3B is less than 1% of what the SSA pays out every year (all programs). Remember, some portion of the Covid-19 deaths were taxpayers, not beneficiaries. And a large portion were 85+ years old* and unlikely to be collecting very long regardless.

So the popular comment around here that Covid-19 may materially help the SS trust fund seems unlikely.


* looks like ~28.5% https://www.statista.com/statistics/1191568/reported-deaths-from-covid-by-age-us/

 

[Koolau]

I assume that I will not see a dime of Social Security.

If I do, great. But I'm not counting on it.

Yeah. I used to think that way 25 years ago. But now DW has been collecting for 12 years and I have been collecting for 4.

I repeat my prediction that Congress will find some sneaky way to make it all work BUT they won't cut benefits for those already receiving them. Can you imagine a Congress (the next year) with ALL Freshman Congress Persons? That's what would happen when every (or even the "richest") old SS recipient suddenly lost $2 in payments. I know 'cause I saw my DW's parents change their entire politics over a proposed cut (that never happened) that was on that order. YMMV

 

[2177V]

I'm suppose the professional actuaries that do the analysis for the Trustees know about Covid-19 effects, including the massive loss of payroll taxes. Incorporating Covid-19 effects is what they blamed the delay in the report on.

FWIW, $8.3B is less than 1% of what the SSA pays out every year (all programs). Remember, some portion of the Covid-19 deaths were taxpayers, not beneficiaries. And a large portion were 85+ years old* and unlikely to be collecting very long regardless.

So the popular comment around here that Covid-19 may materially help the SS trust fund seems unlikely.

In that case, Inflation may save SS. This is because higher wages translate to higher taxes and higher SS contributions. I am surprised that the next SS COLA will be 6 to 7% but I am not complaining. High Inflation hurt retirees if their retirement income does not keep pace. High inflation may also hurt the stock and bond market. This is because if interest rises, people may pull money from the stock and bond market and into the high interest earning CD with lower risk. The stock market also gets a second hit because the Fed has to increase interest rates to mitigate the effects of inflation and this suppresses corporate growth and increases corporate expenditures because they now have to borrow money at a higher cost. This is why I have invested some money in VCMDX as a hedge against inflation. Bonds only provide a hedge against a bear market but does nothing against inflation.

 

[Safire]

Hi,

I'm counting on receiving Social Security in retirement. The recent 2021 Social Security Trustees report now says the Old-Age and Survivors Insurance part of Social Security will only be able to pay 76% of benefits as of 2034. I assume one of the worst case scenarios, that politicians won't do anything about this and benefits will be reduced.

To account for this in my planning I use a calculation like this:

(Amount I expect to receive between now and 2033 +
76% of amount I expect to receive between 2034 and death) / years of retirement

I allocate the result of this calculation to the "income" side of my expenses calculation. I don't do anything about cost of living adjustments.

Are any of you accounting for a benefits reduction in your retirement planning? How are you doing it?

Thanks,

--
Dan

I am not assuming a DIME in social security and hoping to be solvent without it. I think by the time 2034 rolls around (ironically right around when we plan to retire), we might be lucky to get 10% of the promised SS, as opposed to 75%, What irks me is that we're paying into the system but our disabled son may not receive what he is due based on our earnings. If it hadn't been for him, SS potentially ceasing to exist in 2034 won't rankle me one iota as much as it not being there for my boy does.

 

[youbet]

What irks me is that we're paying into the system but our disabled son may not receive what he is due based on our earnings. If it hadn't been for him, SS potentially ceasing to exist in 2034 won't rankle me one iota as much as it not being there for my boy does.

This is why I think Social Security disability payments should be in an entirely different program than Social Security retirement payments. It was a huge mistake when Congress added disability payments to the SS charter. They should have created an entirely different system for that.

 

[Chuckanut]

Clark Howard iterviews SS Expert

Here's an interview Clark Howard did with Mary Beth Franklin. 30 minutes of interesting information about many of the questions asked at this site and others. Podcast date: 01/04/22

Mary Beth Franklin is a Certified Financial Planner, financial journalist, podcaster, and author of the book “Maximizing Social Security Retirement Benefits” - joining Clark to discuss when best to claim benefits, the solvency of the program and what younger workers can expect from Social Security in the future.

The Apple podcast can be found at this link. Clark.com has links for other podcast services.

https://podcasts.apple.com/us/podca...urity-with-expert/id207724573?i=1000546935930

 

[Member]

Here's an interview Clark Howard did with Mary Beth Franklin. 30 minutes of interesting information about many of the questions asked at this site and others. Podcast date: 01/04/22

The Apple podcast can be found at this link. Clark.com has links for other podcast services.

https://podcasts.apple.com/us/podca...urity-with-expert/id207724573?i=1000546935930

Thanks for the podcast. I listened to it and I didn't hear anything to discourage me from continuing to use my pessimistic approach (politicians won't do anything, benefits will be reduced).

I have noticed though that this podcast nor any other resource I've ever found cites reduction of sequence of returns risk earlier in retirement as a reason for taking Social Security at 62. If I take Social Security at 62 I'll withdraw less from my 401K at the beginning than if I take it at 66 or 70. The potential gains on that higher 401K balance seems more certain than counting on a larger benefit in the future at age 66 or 70 from a system that's subject to the whims of politicians.

 

[523HRR]

Always considered Social Security to be gravy in our retirement plan. If we get it, great. If not, meh.

 

[RobbieB]

Yeah, collect it when you can.

Now collecting survivor benes and also past FRA, so letting my bene do the 8% thing.

Now go all the way to 70, or transfer early? We shall see what we shall see.

 

[flyingaway]

I think if social security goes bust, they may mail you food stamps every month.

 

[corn18]

I am planning for 100%. Retired last year @ 55. With a COLA military pension and free healthcare for life for me and my wife, we just need to slide into 70 with a few shekels left over for LTC or the kids.

 

[Tafkah]

I always include 100% SS for input into retirement calculators. But in my situation, it probably won't make any difference.

Maybe someone here could answer a nagging question for me: SS is a life annuity that can begin at age 62, age 70 or anywhere in between. Is the NPV of these different annuities the same, regardless of what age it begins? Or is there an extra penalty for early SS and and extra reward for late SS? Thanks.

 

[phil1ben]

I have never relied on government for anything and have always assumed that it would find someway to reduce or deny me the right to collect because of income thresholds etc.....Now that I am turning 62 shortly it appears that I may actually be able to get some of my money back......although I will probably wait another year or two.

 

[brett]

I have faith in politicians...of all stripes.

Their first priority is to get elected. Their second is to take care of those who helped them get re-elected and financed their campaigns.

Their third priority is to get re-elected.

I cannot see any politician proposing to eliminate or reduce social security. Not one that wants to get re-elected. Priority numbers 1 and 3 come before all else. They will raise taxes or cut expenses in other areas before they ever consider cutting SS. It is not in their DNA or their basic survival instincts.

 

[REWahoo]

... have always assumed that it would find someway to reduce or deny me the right to collect because of income thresholds etc.....Now that I am turning 62 shortly it appears that I may actually be able to get some of my money back......although I will probably wait another year or two.

If you truly believe your first sentence, why on earth would you delay a single day in collecting?