Social Security & FIRE Planning

[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]

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Originally Posted by imnontrad 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]

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Originally Posted by 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.

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.

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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]

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Originally Posted by RunningBum 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]

Quote:

Originally Posted by 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..... ...

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]

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Originally Posted by Andre1969 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/social...ty-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]

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Originally Posted by 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.

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

[HoneyBadger]

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Originally Posted by gregable 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]

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Originally Posted by Koolau 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.

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...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]

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Originally Posted by 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.

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

[Koolau]

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Originally Posted by Dtail 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]

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Originally Posted by Koolau 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.

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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).

[Koolau]

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Originally Posted by pb4uski Huh? BLS CPI calculator shows $100 in March 2020 has the same buying power as $102.62 in March 2021.

Uhh, I'm no math major but 102.62 is darn near 3%. As always, I'm skeptical when the folks with the most to lose (like the FEDs who borrow money) get to say what inflation is. Being able to say "excluding housing, food and energy" (uhh, how convenient) isn't even stopping the rise in official or for-all-practical-purposes official inflation figures.

More importantly and perhaps more instructively, the most recent 6 mo. I-bond inflation interest was (IIRC) 1.77 (or about 3.54% annualized - see the current thread. https://www.early-retirement.org/for...-a-109136.html) If the FEDs put their money into it, it must be at least minimally "real." I'd put some money on it going up from here, but I have no crystal ball. I just hear a lot of whining about stuff like house prices doubling in many areas (they have in my old neighborhood) and building materials going up 3X - if they are even attainable. Local restaurant meals are up 35%. Gas is up 30%.

Supposedly one of the FEDs primary responsibilities is to control inflation within certain parameters. At some point, rates will have to rise if inflation continues to rear its ugly rear. I think this could be the beginning of significant inflation and I HOPE I'm wrong, so YMMV.

[pb4uski]

Near is not "already exceeding". I suspect we'll get a small spike in inflation that will then subside.

The thing I do know is that it's not already exceeding 3%.

[Koolau]

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Originally Posted by pb4uski Near is not "exceeding".

True enough for THAT number. If we're gonna pick and choose our inflation indicator, I'm going with the one where they go so far as to back it in cash! (1.77% for 6 months of I bonds) I'd say THAT is exceeding 3% (exceeding 3.5%!), but of course we could argue all day about inflation and whether the FED will do its thing. It will be more clear in the rear view mirror. If I were gonna put a 10 spot down on the rear view I'd say MORE than 3% but YMMV.

[Exchme]

There are so many larger uncertainties in planning than to worry about whether politicians that like getting re-elected will cut a very popular program or will just borrow and spend some more money.

Years ago, politicians just talked about privatizing some of SS and there were (very effective) ads against it showing someone pushing granny and her wheelchair off a cliff. Stopped the effort cold.

[Koolau]

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Originally Posted by pb4uski Near is not "already exceeding". I suspect we'll get a small spike in inflation that will then subside. The thing I do know is that it's not already exceeding 3%.

Yeah, even with your edited comments, SOMEBODY in the gummint believes it is exceeding 3% and they're backing it in CASH - I bonds with annualized 3.5% inflation payment. Probably no point in arguing - especially since I have a lot less faith in BLS. If you check out their site, they have a CP for just about every occasion. I can assure you MY inflation is much more than 3% and I'm betting a lot of other folks here would agree. Maybe we can agree to pick our own gummint numbers and THEN agree to disagree since YMMV.