Planning on Social Security?

[patnbj]

I'd like to hear thoughts about counting Social Security as a part of ER income.

If you don't count on it, why not?

If you are counting on it, do you have a backup plan if funds dry-up?

I'll answer the questions myself first. Yeah, I count SS in the retirement income mix. I'm a boomer and the projections say that SS will be solvent for at least the first few years after I begin drawing it. However, I figure that I have at least two backup plans if the checks stop arriving:

- High probability of nest egg funds remaining
- Home equity to tap into

[RedOscar]

I too include Social Security in my financial plan. I think you would see a real revolution if congress tried to stop the payments. The statistics show that too many people have too little savings to discontinue the plan.

Do I have a backup? Well, I have a pension, a reasonably fat 401k balance, significant personal savings, home equity, a variable annuity, and life insurance (in case I'm mortally wounded while Storming the Bastille).

Hopefully that is enough to get me through.

Red

[Ted]

There is mixed news about Social Security. The "bad" news is that the "Social Security Trust Fund" is basically an accounting device for transferring purchasing power from current workers/taxpayers to retirees. The funds that are in it are somewhat of an illusion, because they represent a claim that we Americans have upon ourselves. Politically, the trust fund is like a government bond in that it represents a committment of future payments to future retirees. But the economic reality is that that promise is only as good as the ability and willingness of future workers/voters to honor it.

The "good" news is that, politically, a future Congress would find it difficult to abolish Social Security altogether. (The possibility of the system going "bankrupt," in the sense of the trust fund becoming depleted, is no real problem because all that Congress would need to do to remedy that would be to transfer money from general revenues into the Social Security account.) But it is extremely likely that, as the ratio of retirees to workers places a greater financial strain on workers, it will be necessary for the real value of Social Security benefits to be reduced in some way. One way, which is actually happening, is for the age of eligibility for benefits to be increased. Another will probably be for benefits to be taxed more heavily for retirees with higher incomes. And another will be for benefits to not be increased as rapidly as overall inflation.

I think that benefits will soon be increased by including prescription drugs in Medicare (and I support that) but if so, reductions will need to be made in other benefits of the program to keep it affordable for future workers to support.

One way that future workers/voters will be able to reduce the financial burden imposed on them by future retirees will be to inflate the money supply. This is a subtle way of "wiggling out" of financial commitments. And the way to do it is by what we are seeing now -- increasing government spending without raising taxes, thereby creating the need to finance the spending by issuing more Treasury bonds, which must be purchased by the Federal Reserve creating more money, to prevent bond prices from dropping (i.e., interest rates from rising) too much.

In short, expect higher inflation and future Social Security benefits that don't keep up with it.

[Michael]

I plug 75% of what Social Security tells me they will send me in 21 years into the calculators. This is just a wild guess though, based upon what many financial planners are saying.

[WRBT]

I've got a question. If one works until they are 45 earning pretty good buck then semi-retires to fewer hours and less pay in a hobby type job doesn't that dilutre the average income they use to calculate SS benefits? Or what if there are no earnings at all?

Like if I averaged 76k for 20 years then stopped working at age 45. At 65 years old would SS benefits being figured at 38K annual salary? And is so wouldn't it be wise to start taking benefits at age 62 so you don't incur 5-8 more years of reducing your benefits?

[Michael]

The Social Security web site has calculators that will show you how much you are entitled to now, even if you never earn another penny. *The formula they use to calculate benefits is complicated, so the best thing is to just go to their web site and plug in your numbers. *When they ask you to estimate future earnings, run several scenarios. *Put in nothing, hobby work, and full time salaries. *Benefits are based upon your best 35 years, so drawing at 62 will not give you more benefits (drawing at 62 will give you less per month for life). *Full benefits are no longer automatically given at 65, as the age has been raised to 67 for some people.

http://www.socialsecurity.gov/planners/calculators.htm

[MRGALT2U]

Social Security will be there. Trust me. I have little or no faith in our government to do the right thing, but even I can not see any
significant changes in this particular program. Only
some tinkering.

[Telly]

I'm counting on SS being there. I can't ER without its influx to help out in the future. With all the squawk about SS "problems" in the media, I feel strongly that it will be there. Here's why:

The most reliable voting block is the elderly. An issue that affects them and they are at the polls in large numbers. The lowest participation voting block is the young. I don't expect significant change there. Even if 20% more young people did turn out to vote, the very large Baby Boom generation is swelling the ranks of the old(er). "Grey power" will be "in".
So I don't expect a cut in benefits.

But what about a change in taxation? Could higher taxes be added to using SS benefits? No need to bother with that! It is "taking care of itself", thanks to the IRS!

The IRS $32k for joint method of exposing more SS benefits to taxation as "other" income goes up with inflation over the years will cause more and more SS benefits to be taxed. Note that the method the IRS uses for "other" income is Taxable Income + Non-Taxable Income. That's right, NON-Taxable too. Nothing slips by them, that's for sure.

Very few discuss the impact of the increasing taxation of SS benefits, not the popular press, that's for sure. Other than Scott Burns, I don't think I've seen it talked about anywhere else.

So I don't expect to see any major changes in SS, unless its us future old folks rioting about all our SS benefits being taxed in the year 20xx.

[BUM]

I received my SS statement in the mail today. I asked 2 people "So how much will I get when I retire?" They said "Its right there AT AGE 62 YOUR PAYMENT WILL BE ABOUT $1458/mo.)"

BS!!!!!!!!!!!!!! The print says, at you current earning rate if you retire at age 62...

The report projects that I'll work another 9 years and earn at my present rate and continue to pay into SS. I'm 53 and if I opt out now, then what?

This report has no "early out projections". Could it be the SSA wants me to work till I drop?

I say dont count SS in your analysis unless you:

A. Already receive it
B. Are at or very near 62
C. Can redeem dryer sheets left by the tooth fairy.


BUM

BUM,

Go to the Social Security website (It's really pretty good!!) and download their calculator to your PC. It will tell you exactly what you will get. Even if you ER.

You will have to key in your yearly earnings for each year worked.

I always keep a copy on my PC.

[Bob_Smith]

Or you can fill out this form and let SS prepare a statement based upon any retirement age you wish:

http://www.ssa.gov/online/ssa-7004.pdf

But I prefer the program Cut-throat mentions because you can play around with "what-if" scenarios.

[BUM]

C-T

Downloaded the SS calculator. Will input the data and run the calc next week, in between trips to the "Liar's Club" (my nickname for the local bait shop). Goin Fishin next week!!!

Next post from the carolina shore!!!!

BUM

Bon Voyage Cut-Throat. I will be in court on Thursday
with my attorney's meter operating at full speed. Needless to
say, I'd rather be fishing.

John Galt

[cute fuzzy bunny]

I dont count on social security or anything else I dont have control over. I plan for success in the absence of it, and if its there in any amount, its gravy.

With regards, to lawyers, you do know what they call 10,000 lawyers at the bottom of the ocean encased in concrete?


A good start.


PM me for the funniest but naughtiest lawyer joke on earth. I sold data processing systems to lawyers for 3 years, I think I know all of them...

TH my friend, the problem is that you actually can control very little, whether you believe it or not.
Alas, many of us must count on SS or be "dead in the water" ER-wise.

John Galt

[unclemick]

Here's the deal. ER requires planning and thus assumptions (along with worry/what ifs).

In our case at 49 - heavily worked on frugal to cut expenses, did not overspend based on pension at 55 (waited till check in hand), then took straight pension not higher amount based on SS. At age 60, fully expect SS to arrive at 62 and will adjust accordingly - when the first check arrives. "Trust but verify".

Retirement calculators/pension options said we could have spent more early but we chose frugal and most important - left nothing on the table, wish list wise.

Hello unclemick! "Frugal" can indeed take you a long long way. Besides my lack of pre-planning for ER,
my years of livin' large left me with limitations on how
low I can go, cutting back-wise. For example, my eye
is easily offended. Thus, everything must be maintained
to a much greater extent than others may find acceptable. This requires time and money, but I have
standards which must be met. My cross to bear,
so to speak.

John Galt

[JonnyM]

Unclemik nails the thread in that if we are talking about "Planning on Social Security", the prudent answer is no, I don't enter it into my calculation re: ER future date. Obviously if you are at an age where you can begin to receive SSA payments, ala 62, go for it, I certainly will, and it should finance that European Vacation we've talked about doing someday when we have the time (and the money).

However ER planning which hopefully is occuring as young in a person's life as possible, can't really get around a concept of an entitlement a decade or more away. Of course I'm assuming that ER is being defined as retiring as early as makes sense for the individual. I didn't figure out is was possible until I was already 43. Not a lot of time to build up that nest egg. On the other hand I found out my choice to go into government service in my 20's could pay real dividends in terms of a defined retirement plan without risk. So in a sense I unwittingly traded the possiblity of ever making "serious" money in my career for a safe and secure middle class lifestyle, that if I'm willing to downsize some, can let me out as early as age 51.

Back to the point of the thread. For those planning on retireing in our early 50's or before, SSA is way to far away to be a factor in financial planning any. It's not going to make or break the decision or change the date. It WILL be a nice bonus when we get to 62. Cool! And if you ask me 6 months or a year later at 63, I'll tell you, NO I couldn't live without the extra dough. We all have our idiosynchrocies John G. Mine is another guitar every 6 months. I know I'm not normal, but then I never wanted to be... 8) 8) 8)

Hey Jonnym, nice guitar! SS benefits never played any
part in my decision about whether or when to retire.
I just decided to do it and dropped out, never to return.
Lots of reasons, partly due to my politics. Anyway,
now that I've been retired a while, SS benefits play a
huge role in my life/lifestyle plans. You might even say it is the anchor on which our future retirement is based.
I fail to see why people persist in excluding this in their ER planning. There may be a lot of tinkering, but
most politicians can count (votes) so SS won't go away. I have little or no faith in our leaders but I am as sure of this fact as
I am of anything.

JOhn Galt

[Bob_Smith]

Quote:

Anyway, now that I've been retired a while, SS benefits play a huge role in my life/lifestyle plans. *You might even say it is the anchor on which our future retirement is based. I fail to see why people persist in excluding this in their ER planning. *There may be a lot of tinkering, but most politicians can count (votes) so SS won't go away. *I have little or no faith in our leaders but I am as sure of this fact as I am of anything.

I agree John. It will be there. There's no way I plan to work another 10-15 years to cover the possible demise of the SS system. The only way to protect against every potential financial hit is to work until you die, and even that won't cover it all. Nevertheless, SS isn't too high on my list of concerns. Some reductions, maybe. But it will still be the anchor for 99% in this country.