Does your retirement planning account for Social Security insolvency?

[mrfeh]

No, since I cannot accurately predict the outcome of SS, I use the numbers today for all planning purposes. Luckily in my case, I'm solvent without SS.

+1

 

[Gumby]

It seems reasonable to plan for a 25% haircut in 2034. If, as many have predicted, Congress fixes the problem before then, you can only be surprised on the upside.

As for me - I don't worry about it. Our current withdrawal rate is negative (i.e. - pensions + social security > expenses). If I lost 25% of social security today, our withdrawal rate would still be negative.

 

[athena53]

I really doubt it will happen. Too many people are dependent on it.

They're the ones who won't get haircuts. They'll go after people with other income. My SS (net of taxes) is about 15% of my spending so I expect I'd be affected, likely more than the percentage cut they throw around. I might have to adjust my charity and travel spending if it disappeared completely and/or I might leave less to DS if I increase my withdrawal rate (currently 3.5%). But, one way or another, his and subsequent generations are going to get stuck paying for SS's problems anyway.

 

[Aerides]

A lot depends on age:

If you are ER'ing after 55, even more so after 60, then sure, with SS already on the horizon it makes sense to include it.

But if you are ER'ing in your 40's, like we did, then your assets have to sustain more pre-SS years anyway..at that point adding SS at 67 or whatever seems so far out it's almost silly. Because if your assets are strong enough to sail you thru a decade or more before 59.5, and then another 8 years before SS, well, chances are the SS at that point isn't so much a need as a bonus.

And with a ~20 year outlook, the horizon is barely visible, so more chance for changes, less chance for firm plans.

 

[Montecfo]

We assumed zero for SS. It's longevity insurance. So we can stand a reduced payout.

 

[CRLLS]

I "plan" on 100% of the SS sated income. At least that is what I put in the various software planners.

I'll note the reason is that either my SS at age 70, or my retirement assets will cover my essential budget alone. I use the full SS amount for a comfort level of how much fluff I could have. Our lifestyle never changed from when we were working. If SS is reduced, I don't believe it will be totally eliminated but just reduced. If reduced, that amount will only affect the size of our fluff and any amount left to heirs. That is if we don't use it for our LTC.

 

[mountainsoft]

Unlike many here, we will rely on social security as part of our retirement plan. I use ssa.tools to estimate our SS payments from retiring early (the updated SS web site has a workable tool now too, but I still prefer ssa.tools). Then I take that early retirement social security estimate and only use 69% of those values for our final payments. I used to reduce to 75% but I read the 69% value early on when COVID started and have just stuck with it. Better to plan for less and be pleasantly surprised if they actually fix SS.

 

[CindyBlue]

Unlike many here, we will rely on social security as part of our retirement plan.

We rely on it, too. I suspect a lot of us do. We'd still be ok with a 30% reduction, though we'd have to be more aware of our "extra" spending.

 

[PatrickA5]

I'm already collecting SS. I plan on collecting the full amount for my lifetime. I can't think of a quicker way to be ousted as a Congressperson than to cut existing SS benefits. I just can't see that happening. Younger people will bear the brunt of the pain fixing the problem via paying more in and waiting longer for benefits.

 

[Koolau]

Just my opinion but if your retirement is at risk with the haircut to your SS payments then you probably do not have enough...


Heck, I just pulled my latest SS stmt 2 days ago... I will be getting more than I thought...




BTW, if they can talk about spending 3.5 trillion on top of the 6 or so trillion they have paid out since the pandemic they can move money to the SS system... and I bet there is more voting strength for the people who are getting SS than who would get the other benefits....

Agreed.

No attempt at turning this political (so let's not). The big difference I see between the folks possibly receiving the current (proposed) trillions and those potentially taking the SS "haircut": The folks taking the SS haircut believe (and we could debate this - but let's not) that they PAID IN for the benefit they are receiving now. AND many are already receiving said benefit AND many have been receiving said benefit for several years (DW - 12 years, Ko'olau for 4 years.)

But your point is still well taken. If we can print money for one, we can print money for both - or at least to prevent the SS Haircut. BUT, as always, YMMV.

 

[daylatedollarshort]

We have a buffer for a SS cut or any other curve balls life may throw at us. I don't see any reason to assume SS will be insolvent. Worst case, there will still be money from current workers paying into the system. Just the trust fund will be diminished. With less younger workers, that means less SS for those currently collecting but not $0. Many of the current fix proposals would increase SS at the low end, but perhaps add taxes and/or means testing for those with other retirement income.

We have older friends who are in expensive assisted living now, one with memory care, and other friends who ended up raising grandchildren. Who knows when you plan on a 40+ year retirement what might happen in the future, so I feel better with a big buffer. Our plan B buffer is to downsize to a retirement condo and rent out our current house in a HCOL area.

 

[euro]

No, since I cannot accurately predict the outcome of SS, I use the numbers today for all planning purposes. Luckily in my case, I'm solvent without SS.

Yes, I'm in that enviable position myself, so I basically have always ignored SS in ANY of my calculations. I'm well aware that this is a luxury not everyone has - if I HAD to gamble with SS, I'd probably plan on roughly a 25% haircut past 2030

 

[SecondCor521]

I think people vary in how they treat SS depending principally on their age and what other assets they have.

For people with enough other assets, many here ignore SS for planning purposes and just treat SS as gravy. Some younger folks might also ignore SS because it's far away in time and may not be there.

Broadly speaking, I think that including it at some de-rated amount is a common approach.

I'm 52, and while I now don't really need it for my plan to succeed, I incorporated it in my spreadsheet years ago when I was wanting my FIRE date to get here sooner. I leave it in now because it's easier than changing my spreadsheet again.

I do a similar thing, but somewhat different:

1. I take my age 70 monthly benefit from age 70 to age 85.

2. I multiply that monthly amount by a number to account for the uncertainty associated with the solvency issue. This is one of the inputs on my dashboard, and is currently set at 60%.

3. I then take the NPV of those future monthly cash flows and add this NPV to my FIRE stash total.

4. I then calculate how much I'm spending relative to that FIRE stash number. Usually this number is around 2%, and I call this my gross WR%.

5. I have other income (non-portfolio, non-SS), that I then subtract from the answer in 4. Usually this is around 1%, and I can this my net WR%.

I left out a step. Between the first and second steps above, I increase the amount by an inflation factor (also a dashboard input). My understanding is that the age 70 number on my SS statement is in today's dollars / spending power.

If one's SS is a meaningful portion in their financial picture and they have a decade or two to SS and another couple of decades to collect, it makes a noticeable difference.

I wonder how many people here also do that (adjust up for an inflation factor)?

 

[MissMolly]

We have a buffer for a SS cut or any other curve balls life may throw at us. I don't see any reason to assume SS will be insolvent. Worst case, there will still be money from current workers paying into the system. Just the trust fund will be diminished. With less younger workers, that means less SS for those currently collecting but not $0. Many of the current fix proposals would increase SS at the low end, but perhaps add taxes and/or means testing for those with other retirement income.

We have older friends who are in expensive assisted living now, one with memory care, and other friends who ended up raising grandchildren. Who knows when you plan on a 40+ year retirement what might happen in the future, so I feel better with a big buffer. Our plan B buffer is to downsize to a retirement condo and rent out our current house in a HCOL area.

Actually, the number of Millennials surpassed the number of Boomers in 2019. So this makes me wonder why all the hair-pulling gong on over SS insolvency.

 

[daylatedollarshort]

Actually, the number of Millennials surpassed the number of Boomers in 2019. So this makes me wonder why all the hair-pulling gong on over SS insolvency.

Do you have a source for your statement? This is what I have read, "Americans are having fewer children and living longer, both of which contribute to an aging population. Baby boomers (those born between 1946 and 1964) are retiring at a record pace. As of 2018, 16% of the population is age 65 and over, and by 2060 it is estimated that it will rise to 23%.7 8 At the same time, the working-age population will be getting smaller, from about 62% today to 57% in 2060."

Why Is Social Security Running Out of Money?: Demographic changes mean more retirees, fewer workers paying SS taxes, Source: https://www.investopedia.com/ask/answers/071514/why-social-security-running-out-money.asp

 

[MissMolly]

Do you have a source for your statement? This is what I have read, "Americans are having fewer children and living longer, both of which contribute to an aging population. Baby boomers (those born between 1946 and 1964) are retiring at a record pace. As of 2018, 16% of the population is age 65 and over, and by 2060 it is estimated that it will rise to 23%.7 8 At the same time, the working-age population will be getting smaller, from about 62% today to 57% in 2060."

Why Is Social Security Running Out of Money?: Demographic changes mean more retirees, fewer workers paying SS taxes, Source: https://www.investopedia.com/ask/answers/071514/why-social-security-running-out-money.asp

Why, yes I do. https://www.statista.com/statistics/797321/us-population-by-generation/

 

[MissMolly]

Or there is this. And many more if you care to search. https://www.pewresearch.org/fact-tank/2020/04/28/millennials-overtake-baby-boomers-as-americas-largest-generation/

 

[daylatedollarshort]

Or there is this. And many more if you care to search. https://www.pewresearch.org/fact-ta...-baby-boomers-as-americas-largest-generation/

But those two factors aren't the only demographics that impact Social Security solvency. There are other generations, birth rates, employment rates, immigration rates and longevity as factors of why the trust fund is running out. That part is simply a fact, not an opinion. Those factors are listed in the trustee's report on the SSA site - "Social Security and Medicare both face long-term financing shortfalls under currently scheduled benefits and financing. Both programs will experience cost growth substantially in excess of GDP growth through the mid-2030s due to rapid population aging." - https://www.ssa.gov/oact/trsum/

If you are wondering wondering why all the hair-pulling going on over SS insolvency, per your earlier post, the answers to that query are explained in the SS Trustees' Report.

 

[PatrickW]

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

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

 

[Mark@K-Town]

Not sure what others might think, but when/if SS is "reimagined" and benefits cut or means-tested, there might be a market response (correction). The issue in this scenario is not what "haircut" factor you should include in your model, but how big/long such a correction might be and what correlations it might have for your investment portfolio, including how the government would respond (e.g., protecting union worker pensions ahead of the "rich" retirees). This is what I worry about...

 

[sroby2020]

I usually plan without having SS income. In some planning sessions, I found that drawing SSI was actually an additional tax burden and pushed me into a higher bracket.

 

[RetiredHappy]

I usually plan without having SS income. In some planning sessions, I found that drawing SSI was actually an additional tax burden and pushed me into a higher bracket.

...and why is that a bad thing? Tax is progressive and you will still have more money in your pocket.

 

[skyking1]

I'll be 73 and DW will be 70 in 2034. I plan on it at 100% up to that point, and we would be fine with a trim at that point. We'll be about 4 years into a 0% spend rate after a conservative 7 year run at 3%.

 

[jldavid47]

Hi,
Are any of you accounting for a benefits reduction in your retirement planning?

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. Heck, why don’t they just ask the Fed to create some more money out of thin air and dump it into the trust fund. They seem to be willing to do that for everything else.

 

[Gumby]

...and why is that a bad thing? Tax is progressive and you will still have more money in your pocket.

Exactly. As long as the marginal tax rate is not 100% or more, it's always better to make more money.