Does your retirement planning account for Social Security insolvency?

[braumeister]

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.

I think this is a pretty good discussion of that question by Mike Piper:
Social Security’s Actuarial Neutrality

For an individual person trying to decide whether to claim benefits now or later, there are numerous factors involved, which almost always sway the decision in one direction or the other. That is, there usually is an option that is likely to turn out better than the other options.

 

[CRLLS]

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.

I use 100% of my current and future SS amounts in planning. I fully expect that something will be done, even if that is "nothing". Either way, the SSA will either reduce benefits or the SSA will see new, supplementary income from Congress, requiring either higher income tax or higher debt. Change is definitely in the near future.

 

[karen1972]

I went with a 20% haircut when using FireCalc, I turn 50 this year so basically I'll be able to claim right at the time of the predicted haircut.

I"m not going to completely ignore SS as even with the haircut that would cover over 50% of our expenses.

I didn't go with the higher haircut %s because reality is we are paying full rate on our health care, so medicare is going to cut our health care costs significantly which would easily offset a few extra % SS cut when it comes to budget.

 

[Koolau]

When all else fails, the politicians will do SOMETHING to save SS. They will not want 1/4 of the population voting against them regardless of party affiliation. I think SS is safe, though I feel sorry for our young'uns who will be paying to keep it afloat. Now, if the young'uns rebel (and vote) I suppose us oldsters might get a big surprise.

I still have my back-ups in place, just in case. I'll be 87, so back-up 1 is to just die! Back-up two is to up my WDR appropriately SO next generation (my kids will have less inheritance) will STILL be paying for my SS.

 

[PatrickA5]

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.

+1

Our kids and grandkids will bear the brunt of the expense of making us whole. Kind of like what we did for the last generation.

I'm counting on 100% of my SS benefit.

 

[FANOFJESUS]

I will be fixed at the last minute like everything else. Three ways come to mind. Will make you wait longer to draw. Will increase the tax rate on paychecks by SS. Take away the benefit from those who are deemed rich.

 

[Turbo29]

I had been going back and forth on waiting until 70 to take benefits but after reading this post which mentioned the risk of adverse legislation I decided to apply the next day. Just got my approval letter 2 days ago. (FRA 66y2m; applied to start at 66yr 4m.)

Start taking the money before they really start messing with stuff.

 

[RunningBum]

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?

Basically the same. There are some strategies for married couples. Decide for yourself on a tiebreaker, like if you want to the longevity insurance by waiting longer for a higher monthly check or more money now for a predicted shorter life span, are concerned about how a benefit cut will affect things, or many other factors that have varying degrees of validity.

 

[pb4uski]

I continue to think that Congress-critters will do something between now and 2035 to avoid beneficiaries incurring a 25% haircut to benefits. With a 25% haircut to benefits in 2035 we would still be fine but a lot of other people will be hurting.

 

[Exchme]

I think anyone close to retirement age will not have to worry about this specific point of law, it's far too easy to campaign against (anyone remember the "granny in the wheelchair being thrown off a cliff" ad? - it shut down the last serious effort to change the SS laws about 15 years ago)

But it's very possible that politicians would pass other measures, such as increasing the amount of SS that is taxed, means testing benefits or just a plain old tax increase. No way to speculate what. Like everything about handling future financial unknowns, the best remedy seems to be to save more.

 

[Fire26]

I'm confident they will fix it, they just won't do it any sooner than they need to because it will pass pretty easily, they need to pass all the more difficult (partisan) tax increases first.

 

[Walt34]

I continue to think that Congress-critters will do something between now and 2035 to avoid beneficiaries incurring a 25% haircut to benefits. With a 25% haircut to benefits in 2035 we would still be fine but a lot of other people will be hurting.

Indeed they will fix it, but like last time they will wait until the last possible second to do so. I think in 1983 SS had a matter of a few weeks before benefits were to be cut when the fix went in. 'Tis the nature of politics and politicians.

But I have (albeit perhaps misplaced) faith that the politicians are not going to let it happen, not just because of the number of people over 65 who will be affected, but all of those children who will be concerned about Mom and Dad moving back in with them too. That's an overwhelming portion of the population affected by one issue and any politician with more sense than a box of rocks is not going to ignore them.

 

[all4j]

I haven't read the entire thread, but some posts got me curious about something. I decided tapping collective memory may be better than trying to search.

Several years ago, "file and suspend" strategy was eliminated. It seems to me that people had less than a year to take action. Can anyone recall how much notice was given? I knew several that either barely made it in time or just missed.

Of course, that affected far fewer people than main thrust of the thread. It used to at least be the case that older folks voted more than younger. Is that still true?

 

[REWahoo]

It used to at least be the case that older folks voted more than younger. Is that still true?

From the November 2018 election the voter turnout by age was:

age 18 to 24: 30%
age 25 to 34: 37%
age 35 to 44: 44%
age 45 to 64: 55%
age 65+: 64%

 

[braumeister]

Several years ago, "file and suspend" strategy was eliminated. It seems to me that people had less than a year to take action. Can anyone recall how much notice was given? I knew several that either barely made it in time or just missed.

To take advantage of it, you had to do so (if you were eligible) before April 30, 2016.

This restriction became law in November, 2015, so you're right; it was less than a year. But this was part of the Bipartisan Budget Act of 2015, which was introduced in March of 2015, so if you were paying attention you had close to a year.

 

[CRLLS]

From the November 2018 election the voter turnout by age was:

age 18 to 24: 30%
age 25 to 34: 37%
age 35 to 44: 44%
age 45 to 64: 55%
age 65+: 64%

64% of the smallest group can be misleading as to the weight that their votes might carry in an election. According to the US census data, there were 25% more 18-54 year actual voters in that election than 55+ year old voters. 86,055,000 vs 68,573,000

https://www.census.gov/data/tables/time-series/demo/voting-and-registration/p20-585.html Table #1


Granted, it is a Census poll taken and not actual voter turnout data.

 

[brett]

+1

Our kids and grandkids will bear the brunt of the expense of making us whole. Kind of like what we did for the last generation.

I'm counting on 100% of my SS benefit.

And consider one more factor.. seniors, and those approaching retirement tend to be the most reliable voters.

Where we live they are the most likely of all age groups to show up and vote in an election. As a group they make their collective vote count.

 

[foxfirev5]

64% of the smallest group can be misleading as to the weight that their votes might carry in an election. According to the US census data, there were 25% more 18-54 year actual voters in that election than 55+ year old voters. 86,055,000 vs 68,573,000

https://www.census.gov/data/tables/time-series/demo/voting-and-registration/p20-585.html Table #1


Granted, it is a Census poll taken and not actual voter turnout data.

Yeah, to paraphrase Twain, lies, damn lies and statistics. This applies to our entire spectrum of finances and health.

 

[SecondCor521]

And consider one more factor.. seniors, and those approaching retirement tend to be the most reliable voters.

Where we live they are the most likely of all age groups to show up and vote in an election. As a group they make their collective vote count.

Aside from voting, they're probably (guessing here) more likely to write their elected representatives and get more involved in the process.

And perhaps more importantly, they have more disposable income and probably (fairly sure of this) give more to political candidates, causes, and organizations.

 

[doneat54]

Interesting topic. For us, both with 30+ year salary histories in megacorps, SS is a BIG part of our retirement plan. So having read this thread, I went into Fidelity's retirement planner and degraded our SS contributions by 25%+, and we still are way above threshold. Happy about that....

 

[Koolau]

Maybe I'm just projecting since I'm an old guy, but 2034 seems like a long way off. That's 6 election cycles from now. I "predict" the 2034 figure will drop to about 2030. That last election cycle before it all blows up, both parties will come together and "fix" SS (fix defined as keeping the "ins" in and the "outs" out - but I'm cynical in my old age so YMMV.)

 

[big-papa]

Insolvency? No, at least not as I understand the word. Pretty sure that if it came to that, there would be even bigger issues that can't be solved via asset allocation.

What I do plan for today is the assumption of a benefits haircut as described in the Trustees Report located here: https://www.ssa.gov/oact/TRSUM/

My withdrawal method is a form of ABW (described over on the bogleheads forum) and it includes calculating the NPV (net present value) of future social security streams. In my spreadsheet, I use the current estimated SS benefits for both my wife and I and I apply the benefit reduction % described in the above link to account for it in the year noted in the link. . They do update the data in the link from time to time and when they do, I update my spreadsheet accordingly. If future legislation changes this, I'll update my spreadsheet accordingly.

Cheers.

 

[Aerides]

I don't count on SS, because we retired in our 40's, and, well, if you can't do the first ~20 years without it, it's sort of redundant by the time we get there.

But I also don't expect insolvency. Rather, at most, I expect whittling down of benefits based on age. I don't think that anyone within 5 years of taking it, or already on it, would see any noticeable difference.

It's far easier to reduce expectations for those with a decade or more to plan, than actual checks.

 

[MRG]

I'm part of the group whose FRA was moved back many years ago. I expect a significant sum of money when I turn 70. They can kiss my whatever if they think they are going to screw this up.

Our plan does account for getting a reduced benefit and it's not going to be an issue. That's fine for us but I have family that needs SS to survive. I don't expect a benefit cut because of the millions who rely on it.

 

[W2R]

Yes. Like some others here, I intentionally designed my retirement on the basis of several income streams from different sources (SS, mini-pension, TSP, taxable dividends, RMDs, and so on).

If any one (or two?) of these income streams dried up, I'd still have enough to live the way I want to. We live in New Orleans which is a low/medium cost of living area and that helps, too.

It also helps that I don't yearn for expensive international travel, cars/boats/planes/motorcycles/RV's, designer clothes, or other pricey stuff. Give me my Nintendo Switch and a game cartridge to play here in my paid off Dream Home, next door to my dear Frank, and the internet so I can babble on to y'all about this kind of thing, and I'm happy and content.