Social Security Cuts- What do you expect?

[bizlady]

We are in our early 50's, and expect to retire at 55. We plan to collect social security at 62 (if they do not move that age back like they did for full retirement).

Maybe we are pessimistic, but with social security shortages projected, we think benefits may be cut in the future.

We budeted 75% of what we are projected to get, assuming 25% cuts are hopefully on the high end of what might happen.

What have the rest of you not currently collecting planning for?

 

[DblDoc]

I'm 47 and planning $0 from SS. Anything I get will be gravy.

DD

 

[Katsmeow]

I'm 47 and planning $0 from SS. Anything I get will be gravy.


In some ways, of course, that is the ideal approach.

However, for this with not as long a time horizon this assumption could mean needless years of scrimping and saving and working.

I was running numbers in the Firecalc last night. I am 55 and my husband 62. I was playing around with retirement 5 years from now. If I plug in our existing 401(k)s, taking DH's pension as a lump sum in 5 years and combined social security income of roughly $50k, the firecalc says we have a 100% chance of not running out of money even if we never save another penny.

OK, run the calculator again but take out the social security...not so good.

So I added in savings over the next 5 years. Even saving as much as $75,000 a year didn't do it.

To get to a 99% chance of success I had to put in saving $75000 over the next 7 years, delaying my husband's retirement to age 71 or alternatively him retiring and me continuing to work (the most likely possibility).

So assuming that we will get zero from social security would mean that we needed to save $75,000 a year for the next 9 years. Assuming social security will exist, we could both retire in 5 years (if we chose) and wouldn't have to save a penny during that 5 years.

I have to say that neither assumption really makes me happy. It just seems nonsensical for us to assume at our ages that Social Security will just totally vanish. And, making that assumption could mean years of scrimping and saving every extra penny and years of extra work.

On the other hand, I do think we should allow for some uncertainty. While Firecalc says we would be fine without further savings I am mindful that expenses could be greater than I project, etc. So we do plan to save over the next 5 years. An average of $60k a year (maxing out 401(ks) plus a bit more) is probably doable, even a bit more. And, of course, I probably will continue working somewhat longer.

What I find difficult to determine is what to chose to model this for planning. I want to count something for Social Security but counting all or nothing seems unsatisfactory.

 

[W2R]

I am 61, and I think it is very probable (almost a "given") that I will get SS. However, I expect that the cost of living increases will begin to be far less than inflation. Up to now, they have been pretty good. But I expect the government to "fiddle" with the inflation indices so that they no longer are.

Even at my age, I have computed a "Plan B" in case SS goes belly up completely. I don't think that is at all likely. However, I think that we should all be prepared just in case it does.

If my age was under 50, I would assume that I am not going to get SS. I think that is an absolute crime and a terrible injustice, but there it is.

 

[Midpack]

I'm 55 and I have never used more than 50% of SS estimate in my planning. However, I have no pension or retiree health care so I am relying mostly on my own net worth to retire and SS is not a big part of my plan even if we got 100% (no chance). Furthermore, my spending budget is about 150% of the basic spending, so I have a good safety factor built in.

For someone with SS as a big part of their plan, the estimate is critical, so I wouldn't dare suggest an amount - it could be make or break.

They will either reduce the future benefits and/or extend the eligibility ages. To me the latter makes more sense, but there's no telling what our expediency minded politicians will do, except they won't be at all proactive.

 

[Walt34]

Like the others, I am pessimistic that SS will be "as promised" but I don't see it going away entirely either. In that event we'd see riots in the streets at a level to make the 1960's look like a boisterous party. So we're figuring between 50 and 75% of the "as promised" level.

 

[ziggy29]

I think anyone above the age of 50 will get everything promised, and any "reforms" that make it a worse deal will, like most things, only stick it to the younger generations.

I think we'll get something though I tend to use half of the currently listed projected benefit as my own estimate for planning. If I were a bit younger, I'd zero it out completely.

 

[Rustic23]

Unfortunately, I don't think you can discuss this issue without considering politics, yet, I don't intend this to be political. Currently the Dems control government. I believe they are far more likely to raise the maximum income the payroll tax is paid on than cutting benefits. I also think they will play with the COLA. While future inflation has been discussed in other threads, tinkering with COLA with increasing inflation will help solve their our problem. Of more concern to me is Medicare. Like SS, I believe it will be around, but it will not cover what it covers today at today's cost. Now I can plan on $200 a month for wife and myself and a known supplemental cost. Forecasting the changes in this system is far more difficult for me.

I did not address what Republicans would do with the system. Truthly I don't know what their stance is, and I don't think it matters as I think SS will be done by a largely Democratic politicians, as I believe they will maintain control of government for at least another three years.

 

[Midpack]

I think anyone above the age of 50 will get everything promised, and any "reforms" that make it a worse deal will, like most things, only stick it to the younger generations.

You could well be right but DW and I are both past 50 and I hope you're wrong. We have all known about the train wreck ahead with SS, Medicare, etc. and it's really not fair to the coming generations to leave benefits as they are. We can't expect one generation to bear more burden than another, it should be equally shared. When I hear AARP and others say that SS or other benefits should be sacred without acknowledging what it will cost, it makes me sick to my stomach. More myopic entitlement mindedness IMO...

 

[bbbamI]

What have the rest of you not currently collecting planning for?

I figure receiving 50%...mostly due to the fact that something could happen to one of us and we would get less.

I'm 51 and DH is 55. We're getting a pension (smaller annuity since we took a partial lump sum) and will both be eligible for SS. The plan is to live on "our" funds; pension/ss will be for the extra expenses. I don't like to depend on promises.

 

[TromboneAl]

I think anyone above the age of 50 will get everything promised, and any "reforms" that make it a worse deal will, like most things, only stick it to the younger generations.

Agreed. The last time SS reform was proposed, I recall the government saying "If you are older than X, then you won't be affected." IIRC X was 55, right?

 

[tuixiu]

I believe the chances of SS being completely axed (and our cities looking like Calcutta with old people begging on the streets) are pretty low, and if it did happen would coincide with world events that would make that the least of your problems. It may be less, and the age may be moved back, or harsher means testing relating to other income, but I seriously doubt poof it's gone.

I usually use 70% of promised bennies in firecalc. Plan B for above statement being completely wrong = hello Panama/Thailand/Malaysia/etc.

 

[W2R]

Agreed. The last time SS reform was proposed, I recall the government saying "If you are older than X, then you won't be affected." IIRC X was 55, right?

That's my recollection. This was back during the last administration.

 

[ziggy29]

That's my recollection. This was back during the last administration.

I still think 50 will ultimately be the magic number for being grandfathered out of reforms, because that's AARP's magic number.

 

[DblDoc]

I found this at the AARP site.

http://assets.aarp.org/rgcenter/econ/i3_reform.pdf

It lays out a variety of options for fixing the solvency problem, including some they are opposed to.

For planning purposes this may be helpful:

Contrary to popular perceptions, the Social Security system will be able to pay full benefits until 2041. After 2041, the system will rely exclusively on payroll tax revenues that will enable it to pay roughly 78% of current law benefits in 2042 and subsequent years.

This would imply the worse case scenario would be 78% of current benefits.

DD

 

[ziggy29]

This would imply the worse case scenario would be 78% of current benefits.

On average, assuming the crappy economy hasn't made it worse. More likely, though, there will be some "revenue enhancements" and increases in the full eligibility age to bring that 78 cent figure up by a few cents to 80-something. And then others are likely to get 100% but others could be "means tested" down to 50% and so on.

 

[Texas Proud]

I found this at the AARP site.

http://assets.aarp.org/rgcenter/econ/i3_reform.pdf

It lays out a variety of options for fixing the solvency problem, including some they are opposed to.

For planning purposes this may be helpful:

This would imply the worse case scenario would be 78% of current benefits.

DD

I have not read the article.... but I do remember reading that the worst case was not really 'that bad'... and a small fix here are there would make it where it would recover even paying out close to 100%...


Didn't I read somewhere where someone thought this recession would make it solvent since there are so many people now that will NOT be able to retire early and start their SS

 

[ziggy29]

Didn't I read somewhere where someone thought this recession would make it solvent since there are so many people now that will NOT be able to retire early and start their SS

On the other hand, if there are fewer jobs, there are fewer people paying SS taxes. Plus, I don't think the models planned for zero or even negative wage growth for a while.

 

[charlie]

I think the gov will "solve" the problem by removing the salary cap and/or
some combo of raising the retirement age. Any reduction in "promised"
benefits would be political suicide. Raising the retirement age seems fair
to me so long as an "appropriate" age is grandfathered. Raising the salary
cap and indexing it to inflation also seems fair to me. If it matters, I am
a moderate Republican.

Cheers,

charlie

 

[Nords]

However, I expect that the cost of living increases will begin to be far less than inflation. Up to now, they have been pretty good. But I expect the government to "fiddle" with the inflation indices so that they no longer are.

I think the CPI process is subject to enough public scrutiny that politicians fear a backlash. There's even research on the "Wal-Mart effect" claiming that the CPI is set too high by the current methodology.

Didn't I read somewhere where someone thought this recession would make it solvent since there are so many people now that will NOT be able to retire early and start their SS

I'm not aware of any formal research linking worker's longer working years (and payroll taxes) to saving SS & Medicare. But that's the cynical observation of many on this board.

I think anyone above the age of 50 will get everything promised, and any "reforms" that make it a worse deal will, like most things, only stick it to the younger generations.

To mess with SS and Medicare the executive & legislative branches would have to pull off a massive CPI-rigging silent conspiracy, craft extremely unpopular legislation and then publicly vote on its passage, or alienate the entire medical/healthcare industry by squeezing on reimbursements.

Why speculate about complicated "evil genius" schemes when simple stupidity & laziness will do? I suspect that the answer will lie in raising taxes by a combination of "sin penalties" (higher premiums for smokers or overweight or lack of exercise) and means testing by taxing the benefits. Oh wait-- that's already happening.

Let's not forget that the 77-million-strong Boomer block votes a lot more consistently than the rest of you young whippersnappers. The next step is to gradually raise the [-]I got mine[/-] full retirement age. IIRC for those born in 1960 it's already age 67. For those born after 1980 or 1990 it wouldn't be politically impossible to move both SS & Medicare up to ages 70-75, in line with actuarial longevity data.

Many members of Congress, and not a few residents of the White House, would point out that they'd be [-]screwing themselves just as much as their constituents[/-] feeling everyone's pain.

 

[Telly]

DblDoc's quote above made me dig through my SSA paper file, as I remember and had programmed 73%, not 78%, into my spreadsheets.

Interestingly, I found that the percentage had been changing over time, actually increasing. I didn't know that.

All data is from SSA "Your SS Statement" dated in the summer of each year listed:

2001 - 73%
2002 - 73%

2003 - 73%
2004 - 73%

2005 - Don't have it
2006 - 74%

2007 - 75%
2008 - 78%

 

[REWahoo]

Telly, the 2005 number was 74%, the same as 2006. And the number for 2000 - 72%.

 

[aaronc879]

If my age was under 50, I would assume that I am not going to get SS. I think that is an absolute crime and a terrible injustice, but there it is.

I think there is a zero % chance that social security will be eliminated completly without being replaced by something similar so planning on getting nothing makes no sense to me. There's no way the government is going to let millions of elderly people with no savings live on the streets. There will always be social security in some form for those who need it. I could see them eliminating it for those with a certain net worth or for people with pensions that pay more than social security but not for those who need it.

 

[DblDoc]

I have not read the article.... but I do remember reading that the worst case was not really 'that bad'... and a small fix here are there would make it where it would recover even paying out close to 100%...


Didn't I read somewhere where someone thought this recession would make it solvent since there are so many people now that will NOT be able to retire early and start their SS

That is the gist of the AARP article. There a few things they don't like but they point out a little bit of this and a little bit of that could fix the solvency problem without creating to much focused pain.

DD

 

[SecondCor521]

I am 40 and right now assume I will receive 25% of my future benefits. I assume a SS COLA of 3%, which is approximately what the actual SS COLAs have averaged over the past 10 or 20 years, and then I discount that future income stream to an NPV which I use in my FIRE net worth.

I feel much like Katsmeow and bbbamI about it. It's a significant factor in my FIRE-ability but I don't like relying on it. I do have it as a variable in my spreadsheet and can adjust it as I see fit. What I think will happen is that I will "achieve FI" with that SS assumption in the next year or two, then I'll continue working so I don't have to rely on SS for FI.

One error I have is that I am basing things on the SS PEBES, which assumes I'll keep working until retirement age, which isn't true. I know I can get a estimate with an earlier retirement age; I just haven't done that yet.

I think if we review the history of SS since inception we can make a pretty good guess as to what will happen: the FICA taxes will be increased somehow (eliminating the SS MTA would be my guess), the retirement age will continue to be increased somehow (indexed to longevity would be my hope, but I doubt it), and SS/Medicare benefits will be taxed more.

One surprising prediction I would make based on history is that the program will be further expanded somehow -- perhaps they will add benefits for illegal immigrants or something. This is logically counterintuitive but I think it is part of the political process of making the other changes more palatable to the electorate.

2Cor521