Social Security & FIRE Planning

[KenZ71]

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.

 

[RunningBum]

Your guess is as good as mine.

I'm 59. I'm using 65% (35% discount) of the SSA estimate, and 100% taxed. If it's not that bad of a cut, good for me, or my heirs. I don't feel like I'm cutting back on anything by not using full SSA estimates.

 

[Koolau]

Obviously only a guess, but I doubt you will see an actual discount on what you might have otherwise expected - not in dollar terms. My guess is that what will change is Full Retirement Age or some other smoke-and-mirrors plan that won't sound as bad as suddenly saying "sorry - you don't get what we promised." I have no crystal ball, so take with many grains of (margarita) salt since YMMV.

 

[Morgan22]

I use 79% of my benefit since my statement says:

* Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time. The law governing benefit amounts may change because, by 2035, the payroll taxes collected will be enough to pay only about 79 percent of scheduled benefits.

 

[2017ish]

We've been counting it as zero since we started speculating about early retirement back in the 80s. Figured that the inherent funding issues would tempt Congress to means test the program. Beginning to feel like we might get something, but not yet to the point of including our projected amounts in spending analysis.

Best case scenario is that it will pay a good chunk of education expenses for grandchildren; thereby making our estate bigger.

 

[RunningBum]

Obviously only a guess, but I doubt you will see an actual discount on what you might have otherwise expected - not in dollar terms. My guess is that what will change is Full Retirement Age or some other smoke-and-mirrors plan that won't sound as bad as suddenly saying "sorry - you don't get what we promised."

Sure, I can see that.

Since I'm not collecting SS yet, what I do is figure out what it would cost to buy an inflation adjusted annuity equal to my SS benefit at 70, starting at age 70. Then I use 65%. So if they did something like move things 5 years back, I would recalculate the annuity to start at 75. I have no idea if that would be 79% or 65% or what. If they made such a change and it looked like enough to make SS last for my lifetime, I wouldn't discount that newly calculated number.

I add this number to my net worth that I use for my VPW calculations. Once I actually start collecting SS, I'll no longer do it that way, I'll just know I have $40K or whatever expenses already covered.

 

[GravitySucks]

I use 79% of my benefit since my statement says:

* Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time. The law governing benefit amounts may change because, by 2035, the payroll taxes collected will be enough to pay only about 79 percent of scheduled benefits.

+1

 

[KenZ71]

This is the part that scares me & how the gap will be made up

"by 2035, the payroll taxes collected will be enough to pay only about 79 percent of scheduled benefits."

So not expecting much seems like a safe bet. This way if I'm wrong it will most likely be a pleasant surprise.

Not planning any large decisions for next 6 months but sure is tempting.

 

[Ready]

My crystal ball tells me that eventually the government will find a way to pay out what has been promised to you. But if I were planning to FIRE I would not count on any social security and then whatever you get just ends up being a nice surprise.

 

[rt-texas]

61 and 59 here. I've been using 75% and all as taxable in my planning based on the 79% number quoted by SSA.

Current plan is for me to wait till 70 and DW to file at 62. But will keep our options open based on what the feds come up with.

 

[Markola]

My crystal ball tells me that eventually the government will find a way to pay out what has been promised to you. But if I were planning to FIRE I would not count on any social security and then whatever you get just ends up being a nice surprise.

Sorry, I need to object that this is very bad advice for most people to treat SS as gravy and an optional luxury. For many people, that would mean assuming they could never be able to retire at all, which is just incorrect.

In our own example, even in the event of the projected worst case 79% of benefits for us when we plan to take SS at age 70, the program is a core, essential element to our plan. SS is for us the equivalent of a $1.8 million inflation indexed annuity! Our plan has a 0% success rate if we exclude SS. With it, we have a 97% success rate, so I need throw the flag and blow a whistle on this comment.

 

[rk911]

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.

my wife and i both went at 55 and planned to take SS at 62. i didn't know about FIRE at the time so for planning purposes i just used the SS estimate but when extending that out i assumed a 0% increase year-to-year.

 

[Ready]

Sorry, I need to object that this is very bad advice for most people to treat SS as gravy and an optional luxury. For many people, that would mean assuming they could never be able to retire at all, which is just incorrect.

In our own example, even in the event of the projected worst case 79% of benefits for us when we plan to take SS at age 70, the program is a core, essential element to our plan. SS is for us the equivalent of a $1.8 million inflation indexed annuity! Our plan has a 0% success rate if we exclude SS. With it, we have a 97% success rate, so I need throw the flag and blow a whistle on this comment.

My statement started with "If I were planning to FIRE..."

I'm not referring to people who work until they are 67 years old. I'm referring to people who want to Retire Early because they believe they are Financially Independent. My advice to those people specifically is not to count on social security, because you are making the decision to leave the workforce earlier than you need to, presumably because you believe you are financially solid enough that you have enough to live on for the rest of your life. If a failure to collect social security would prevent you having enough to live on I suspect you are cutting it too close.

But I agree that for the average non-FIRE individual or couple, they do need to know that social security will be there for them.

 

[USGrant1962]

My statement started with "If I were planning to FIRE..."

I'm not referring to people who work until they are 67 years old. I'm referring to people who want to Retire Early because they believe they are Financially Independent. My advice to those people specifically is not to count on social security, because you are making the decision to leave the workforce earlier than you need to, presumably because you believe you are financially solid enough that you have enough to live on for the rest of your life. If a failure to collect social security would prevent you having enough to live on I suspect you are cutting it too close.

But I agree that for the average non-FIRE individual or couple, they do need to know that social security will be there for them.

This is just wrong. It is quite reasonable to make a conservative assumption of 75% or 80% of your earned benefit. But to suggest that FIREees zero out their SS benefit is to suggest they just keep working. That is about as anti-FIRE as one can be.

Do you also suggest assuming all pensions fail and all investments get negative returns for the rest of your life? That's pretty much the same approach as you are suggesting for SS.

 

[Ready]

This is just wrong. It is quite reasonable to make a conservative assumption of 75% or 80% of your earned benefit. But to suggest that FIREees zero out their SS benefit is to suggest they just keep working. That is about as anti-FIRE as one can be.

Do you also suggest assuming all pensions fail and all investments get negative returns for the rest of your life? That's pretty much the same approach as you are suggesting for SS.

It depends on what age a person is thinking of retiring early. If you are planning on retiring at 45 I would not pull the plug if doing so required that social security be a part of your plan.

If you are thinking of retiring at 60, of course things would look different. But this forum is about retiring early. Early is a relative term. Some people consider 45 to be early, others consider 62 to be early.

I pulled the plug at 46. There is no way I would have done that if social security was an absolute must for me to survive.

 

[Markola]

My statement started with "If I were planning to FIRE..."



I'm not referring to people who work until they are 67 years old. I'm referring to people who want to Retire Early because they believe they are Financially Independent. My advice to those people specifically is not to count on social security, because you are making the decision to leave the workforce earlier than you need to, presumably because you believe you are financially solid enough that you have enough to live on for the rest of your life. If a failure to collect social security would prevent you having enough to live on I suspect you are cutting it too close.



But I agree that for the average non-FIRE individual or couple, they do need to know that social security will be there for them.

DW and I FIREd at 54, which is still pretty darned early. The calculators I trust showed that success was very likely, (90%+) with SS coming online in 16 years at age 70 or less. Removing SS, no way, unless we sell our house at age 70 or later and live in something much more modest. YMMV.

 

[SecondCor521]

I'm 51, single, FIREd for 5 years. I use 60% of my age 70 benefit since I plan on waiting to age 70 to start SS, which I then appropriate discount for the 19 year gap between now and then.

Healthcare is a dangerous and tricky topic, but I personally think status quo / gridlock or some tinkering around the edges is the most likely outcome over the next few years.

I don't need SS, but if I included its NPV in my calculations, it would be about 18% of that version of my FIRE stash. I think if someone wants to rely on it, that's their business. But if they asked my opinion I would recommend they take into account the various solvency concerns and look at how much their plan relies on SS being there.

I think the government will continue to do what it's done in the past with SS shortfalls: They'll raise the FICA taxes moderately and simultaneously add new benefits to the program. These new benefits will help some people but will of course not help the solvency of the program. But my magic 8-ball is broken on all this, so YMMV.

 

[rk911]

It depends on what age a person is thinking of retiring early. If you are planning on retiring at 45 I would not pull the plug if doing so required that social security be a part of your plan.

If you are thinking of retiring at 60, of course things would look different. But this forum is about retiring early. Early is a relative term. Some people consider 45 to be early, others consider 62 to be early.

I pulled the plug at 46. There is no way I would have done that if social security was an absolute must for me to survive.

we started thinking seriously about RE in the mid to late 80's...about 12-15 years before it happened. i would've been somewhere around 35, +/-. SS was always part of the plan but only as a cushion. it still is just a cushion today.

 

[grasshopper]

I use a 75% haircut starting in 2034 at the present time. I have collected SS for 8 years, Ms G is FRA but waiting until age 70. I bump SWR to 4% to adjust for the loss the same year, that is if I am not pushing up roses.

 

[Dtail]

I still believe that the SS program will be shored up in the end. Perhaps they will raise the tax rates on the various portions.
Not to include SS at all in a retirement calculation appears to be too severe.

 

[steveark]

It is hard to ignore something as big as Social Security. In five years when my wife and I turn 70 we will receive $75,000 from Social Security. That's only slightly less than we spend now. I don't need it but I'm certainly factoring it in.

 

[finnski1]

It is hard to ignore something as big as Social Security. In five years when my wife and I turn 70 we will receive $75,000 from Social Security. That's only slightly less than we spend now. I don't need it but I'm certainly factoring it in.

I agree. My wife just turned 65 so 5 years left till 70 and I have about 8 years left.
If we both wait till 70 ours will cover 180% of our present spending! That is pretty significant. Throw in DW's small pension and we will be well over 200% SIRE. Up until a month ago (her first small pension check) we have been 100% FIRE for many years. So it will be nice to let the investments and saving side grow again without touching them.

 

[MRG]

For planning we used several different guesses for our benefits. From 0 SS to our projections from SSA. Life is better with the 60k SS is projected to supply but we would be okay without it. When I was planning at 56, it seemed to far away, at almost 64....

I have no projections for what becomes of the program. I do know for millions, including my 71yo sister and husband, it's their only source of retirement income.

 

[Andre1969]

As the old saying goes, your mileage may vary. But for me, SS doesn't really play *too* huge of a role in my success. I always ran two sets of numbers through FireCalc...one assuming full SS, and the other a worst case scenario assuming no SS at all.

For example, according to FireCalc, if I wanted to retire now, withdrawing $85K per year, my chances of success are:
96.0% (full SS)
84.2% (no SS at all)

In the past, I always looked at it in terms of, if SS went away before I retired, how much longer would I have to work to get up to a similar chance of success. In this case, if I work one more year, with no SS, it gets me to 91.1%. Two years gets me to 94.1%. Three years gets me to 97%.

Or, I could reduce my annual withdrawals. If I cut back to $80K per year, I'm up to 93.1%. Cutting back to $75K gets me back to 96%.

Now, cutting back from $85K to $75K might be a big setback for some people, but for me, an $85K budget has a good bit of wiggle room in it. Even $75K has some fat that could be trimmed if needed.

I just ran this scenario assuming a cut in SS to 75%, and retiring now, on $85K per year. My chance of success drops to 95%, instead of 96% assuming the full benefit.

So, I'm not really worried too much about any kind of cuts to SS. I'd rather get the full benefit, naturally. But I don't think a cut is going to affect me too much.

 

[jldavid47]

I use 79% of my benefit since my statement says:

* Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time. The law governing benefit amounts may change because, by 2035, the payroll taxes collected will be enough to pay only about 79 percent of scheduled benefits.

Social Security is the third rail of American Politics. I seriously doubt there will ever be a reduction in benefits due to lack of funding. The politicians will figure something out because of Everett Dirkson's 2 rules of politics: (1) Get elected. (2) Stay elected. Cutting benefits would risk them violating Rule 2.