Social Security & FIRE Planning

[KarenC]

I include it. Retiring in 69 days @ age 55. Planning on the full amount ($60k) starting @ age 70. We're @ 99% Ps with it, 81% Ps without it. Why the hell would I work another 5 years to mitigate a low probability risk? If you think SS is going away any time soon, then keep on working. I'll buy you a beer with my SS check if we ever meet.

I like this approach. When I tried it with my numbers, I was 100% Ps with the full SS benefit (deferring to age 70) and 99.1% Ps with the SS benefit reduced to 79% of the full amount.

 

[imnontrad]

Since the SS amount is based on the "top 35" earning years with each year indexed for inflation, if you retire before you have 35 years of great income then it should definitely be discounted.
But SS was NEVER meant to be the only income in retirement - it is more of a safety net. So plan FIRE as if you were not going to get any SS and when you do, it's just extra money.

 

[2017ish]

Since the SS amount is based on the "top 35" earning years with each year indexed for inflation, if you retire before you have 35 years of great income then it should definitely be discounted.
....

I'm confused by this. If you assume that, for you, social security is immune to political changes, why would you discount your P.I.A. just because you didn't max out for 35 years? DW and I were both well past the second bend point, and working more years at more than the max social wage rate wouldn't have made a significant impact in either P.I.A. As noted above, we don't count social, but not having 35 years of max isn't a factor for us in that analysis.

 

[steveark]

I count it 100% because I will draw it in five years. The trust fund will still be flush then. My wife and I will get $75,000 based on the government's own estimates. That's hard to ignore. But even if it's nothing my safe withdrawal rate will be about 2%, so who cares?

 

[imnontrad]

I'm confused by this. If you assume that, for you, social security is immune to political changes, why would you discount your P.I.A. just because you didn't max out for 35 years?

The estimates for SS benefit assume that you continue to work until you retire at your current income. So, if you retire early before you have 35 years of income, you may have some zero years in the calculation (when the SS assumed income) or years of income at a lower amount (say you retire but work PT at a much lower income). For either scenario, it will mean the the estimate of SS benefit at 62, FRA, or age 70 (ssa.gov, "my SS" page) wil be higher than your actual benefit will be.

 

[Markola]

I'm confused by this. If you assume that, for you, social security is immune to political changes, why would you discount your P.I.A. just because you didn't max out for 35 years?

The estimates for SS benefit assume that you continue to work until you retire at your current income. So, if you retire early before you have 35 years of income, you may have some zero years in the calculation (when the SS assumed income) or years of income at a lower amount (say you retire but work PT at a much lower income). For either scenario, it will mean the the estimate of SS benefit at 62, FRA, or age 70 (ssa.gov, "my SS" page) wil be higher than your actual benefit will be.

And yet, not a zero payout, so wouldn’t it be smarter and more accurate to figure out what that payout amount actually is and include it in one’s income projections rather than assuming zero dollars? It might well mean fewer years of w*rk, which is kind of the mission of this whole forum.

 

[Sunset]

How much should I discount Social Security in my FIRE calculations?

I've been using about 30% the SSA estimate in my calculations and plans, is that too aggressive? Too conservative?

Me & DW both 49 years old

Annual expenses are about 4% of total savings all of which is in retirement accounts so I'm starting to consider firing my employer. Thinking best to wait and see what the incoming political climate will be for healthcare since we will need to fund our own.

Retiring at 49 , means a very long retired life, and (IMHO) a withdrawal rate of 4% is too high and not safe.

 

[GenXguy]

It depends.....

If... I was depending on it for a barebones budget with little discretionary in order to retire, I would assume a 25% cut on SS to play it safe, even though that seems unlikely, because there's not much margin for error with a tight budget.

But... my other retirement stash/income will pay all my barebones expenses and more, so I estimate my SS benefits based on what the SS offline calculator gives me with no discount because I think that is the most likely scenario, so I'm wanting the most accurate output. I have enough of a buffer that I'll be OK, either way.

If... you were a higher income worker over your 35 highest earning years, I think you're more likely to see a benefit cut than a more middle income worker.

Note, if you're not collecting SS for a while, it would be safest to figure that you will pay tax on 85% of your SS income because the 85% taxable threshold has not been increased for inflation since it was put into place, so eventually, as benefits increase over time along with other inflation adjusted income, more and more SS income will be taxed at the 85% rate every year if the government doesn't address the problem. More on that here:
https://www.early-retirement.org/fo...and-social-security-107444-3.html#post2546965

 

[USGrant1962]

Yes, I don't consider that SS has a 15% tax advantage over ordinary income, and more in many states. That is one of the conservatisms in my model.

 

[2017ish]

The estimates for SS benefit assume that you continue to work until you retire at your current income. So, if you retire early before you have 35 years of income, you may have some zero years in the calculation (when the SS assumed income) or years of income at a lower amount (say you retire but work PT at a much lower income). For either scenario, it will mean the the estimate of SS benefit at 62, FRA, or age 70 (ssa.gov, "my SS" page) wil be higher than your actual benefit will be.

Oh. I never thought anyone would rely on that projection if seriously looking at early retirement. So yes, postulating such a case, those numbers would be inaccurate.

 

[albireo13]

I was originally planning on pulling SS after FRA, maybe 70 if I can. I recently retired and am 65yo now and my wife is still working. She is worried about cash flow, and not touching the nest egg, and wants to do overtime to help out. Now I am reconsidering. I may start pulling SS before FRA, so she doesn't kill herself with overwork. I have no confidence that the government will not raid the SS coffers in the near future and getting the SS turned on will help.

Many of our "fiscally responsible" (LOL) politicians are staring at the SS trust fund just like a hungry fat kid staring at a Twinkie!!

 

[ncbill]

The estimates for SS benefit assume that you continue to work until you retire at your current income. So, if you retire early before you have 35 years of income, you may have some zero years in the calculation (when the SS assumed income) or years of income at a lower amount (say you retire but work PT at a much lower income). For either scenario, it will mean the the estimate of SS benefit at 62, FRA, or age 70 (ssa.gov, "my SS" page) wil be higher than your actual benefit will be.

As other posters note, once you're past the second "bend point" it makes little difference in your monthly check whether or not you keep working.

 

[RunningBum]

I was originally planning on pulling SS after FRA, maybe 70 if I can. I recently retired and am 65yo now and my wife is still working. She is worried about cash flow, and not touching the nest egg, and wants to do overtime to help out. Now I am reconsidering. I may start pulling SS before FRA, so she doesn't kill herself with overwork. I have no confidence that the government will not raid the SS coffers in the near future and getting the SS turned on will help.

My first action would be to try to show and convince spouse that all is fine, that dipping into the nest egg in retirement is why you built the nest egg in the first place.

Failing that, I'd definitely start SS so that spouse wouldn't work OT, even if it did cost me some longevity insurance that I hope to use SS for.

Many of our "fiscally responsible" (LOL) politicians are staring at the SS trust fund just like a hungry fat kid staring at a Twinkie!!

Really? Which ones? I've never heard this. Do you have any sources for this, or is it all in your imagination?

I doubt any sane politician is going to kill their career by raiding our SS for other things. The question is, will any take action to keep SS benefits from draining the trust fund.

 

[Andre1969]

I doubt any sane politician is going to kill their career by raiding our SS for other things. The question is, will any take action to keep SS benefits from draining the trust fund.

It's my understanding that the SS Trust Fund has already been "raided", in the sense that it's invested in some kind of government bonds that pay a modest amount of interest. So, that money has already been put to use, in the sense that the government uses the money it raises through savings bonds and such.

A lot of people are under the impression that the SS Trust Fund is just a big stash of cash just sitting there, waiting to be raided. I see this pop up from time to time as well where people think it already HAS been raided, because at some point during the Clinton administration there was some adjustment to the accounting, that included the bonds the SS Trust Fund is invested in, as part of the National Debt? And then they make the faulty assumption that this "raiding" of SS is the reason it runs out of money in 2035, or whatever the date-dujuor is these days?

 

[Sunset]

I was originally planning on pulling SS after FRA, maybe 70 if I can. I recently retired and am 65yo now and my wife is still working. She is worried about cash flow, and not touching the nest egg, and wants to do overtime to help out. Now I am reconsidering. I may start pulling SS before FRA, so she doesn't kill herself with overwork.....

...

Which one of you is the higher earner (getting the larger SS amount). This is important for the longevity aspect of a couple, as 1 is likely to live into the 90's.
Perhaps the cash flow is not really a problem , and if it is, perhaps the real solution is to examine spending instead.

 

[NoiseBoy]

It's my understanding that the SS Trust Fund has already been "raided", in the sense that it's invested in some kind of government bonds that pay a modest amount of interest. So, that money has already been put to use, in the sense that the government uses the money it raises through savings bonds and such.

The notion that the SS Trust Funds have been raided is a misconception that is explained pretty well in the article linked below. The trust funds are invested in US Government bonds that pay interest, just like my I-Bonds pay interest to me. This article, which was update on May 14th, 2020, states that, starting in 2021, SS taxes will not bring in enough revenue to pay current benefits, so SS will begin drawing down its reserves. It goes on to say that current projections show that the reserves will cover future benefits in full until ~2035 after which, tax income will only provide for ~79% of the promised benefits.

My plan to fix SS is to hop in my Hot Tub Time Machine and go back to 1983. While there, I will change my college major and also invest the SS trust fund in BRK.A! Or maybe MSFT?

https://www.cbpp.org/research/socia...understanding-the-social-security-trust-funds

Edit to add: I did a little more reading on the trust funds and found the following quote which helped solidify what I thought was one of the consequences of starting to draw on the trust fund.

So, are the trust funds real? Yes. They have legal consequences for the Treasury and are backed by the full faith and credit of the federal government, just like other Treasury bonds. When the Social Security Administration redeems the bonds, the government has a legal obligation to pay the money back with interest, with no additional appropriation by Congress required. Money from the general fund used to repay debts to the trust funds cannot be used for other purposes, like building roads or providing for national defense. And as an additional outlay for the government, those general fund payments increase the Treasury’s need to borrow from the public, increasing federal deficits and adding burdens on future taxpayers.​

 

[ncbill]

The "trust fund" contains non-marketable securities...they are essentially placeholders for what funds were in the past diverted from social security receipts to the general fund (which lowered the need to borrow in the open market)

Now that we are "redeeming" those securities it means the government has to additionally borrow on the open market for the current fiscal year enough to cover any redemptions even though such borrowing does not show on the current year's budget.

 

[Carol1862]

I figure Firecalc with both full amount of SS and a 25% reduction. Both give us 100% success rate. I doubt it’ll be cut more than that for those our age. But, then, for those younger there could be an age increase or worse, a severe haircut. For us, though, I’m not overly worried.

 

[Koolau]

The "trust fund" contains non-marketable securities...they are essentially placeholders for what funds were in the past diverted from social security receipts to the general fund (which lowered the need to borrow in the open market)

Now that we are "redeeming" those securities it means the government has to additionally borrow on the open market for the current fiscal year enough to cover any redemptions even though such borrowing does not show on the current year's budget.

True, and bad as that might sound, it will be really bad if interest rates spike (think late '70s - early 80's). YMMV

 

[HoneyBadger]

Another point is that social security is structured as more of an anti-poverty program than a retirement savings program. I would take that to mean that if one's benefit is likely to be a very large part of one's income in retirement, it seems more likely that most or all of it will be there. If the benefit would be a small additional part of one's retirement income, it may be less assured. So it seems reasonable for some folks to rely on it while others discount or ignore it.

Exactly! And long-term changes to the program will probably reflect this, including means testing, portion of benefits that are taxable, and bend-point tweaking to reduce payouts for higher earners.

 

[pb4uski]

True, and bad as that might sound, it will be really bad if interest rates spike (think late '70s - early 80's). YMMV

But perhaps not... while the US Treasury has historically issued bonds to fund deficits, it isn't necessarily required to do so... it can just create money without issuing debt in theory.

...MMT proponents argue that governments can spend as necessary on all desirable causes – reducing unemployment, green energy, better healthcare and education – without worrying about paying for it with higher taxes or increased borrowing. Instead, they can pay using new money from their central bank. The only limit, according to this view, is if inflation starts to rise, in which case the solution is to increase taxes. ...

 

[flyingaway]

The government can do what they are doing now, printing money and giving it to people, that is much easier than cutting social security. The national debt is just a number now, whether it is $20 trillions or $100 trillions.

 

[Dtail]

The government can do what they are doing now, printing money and giving it to people, that is much easier than cutting social security. The national debt is just a number now, whether it is $20 trillions or $100 trillions.

Which is why on a side note, there is continuing pressure to keep interest rates low.

 

[Koolau]

Which is why on a side note, there is continuing pressure to keep interest rates low.

How long can we go without rate increases when "official" inflation is already exceeding 3%? Just wondering, so YMMV.

 

[pb4uski]

How long can we go without rate increases when "official" inflation is already exceeding 3%? Just wondering, so YMMV.

Huh? BLS CPI calculator shows $100 in March 2020 has the same buying power as $102.62 in March 2021.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 2.6 percent over the last 12 months to an index level of 264.877 (1982-84=100).