Social Security & FIRE Planning

[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]

Quote:

Originally Posted by 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.

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]

Quote:

Originally Posted by 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.

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.

[corn18]

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.

[jollystomper]

One of my retirement criteria was to have at least a good (as opposed to very comfortable/extravagant) retirement if only 2 of our three retirement income sources (pension, SS, investments) were available. So we did model with and without SS to determine the difference in what our spending level would be.

[Rex]

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Originally Posted by 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.

+1 We've counted ss as zero since the beginning of time.....Now that we are 2 years into RE and 5 years away from 62 (and the first crack at it) we view it as more of a cushion to do more and to let the principal in our portfolio continue to grow for the kids.

[PatrickA5]

Quote:

Originally Posted by jldavid47 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.

+1 No Congress critter will allow a huge segment of their voting base to all of a sudden take a 25% pay cut. Something will come together at the last minute.

[NoiseBoy]

Quote:

Originally Posted by USGrant1962 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.

+1 -- I couldn't agree more with your post.

To those who advise using "0" for their expected future Social Security payments, in what future scenario would SS go completely broke? The only way that could happen would be if Congress removes the OASI tax, right? Otherwise, the system will always have tax revenue, just perhaps not enough to pay the current promised benefits in full. Therefore, I can understand discounting it, just as I can understand using conservative future portfolio returns, but assuming nothing for Soc Sec is not logical.

FWIW - I am using 100% of my projected SS benefit in my FIRE calculations. I have two modest pensions too, one of which happens to be a civil service pension, which means my SS benefit calculation is impacted by WEP. Using 100% or 75% of my SS beneift does not materially impact my planning.

[sengsational]

Completely discounting SS doesn't make sense to me because I don't think that's at all likely. I prefer my models to be as accurate as possible, then adjust for risk after the calculations are complete. But I "get it", that "to be conservative", people leave out SS, their house, etc, and it doesn't hurt to run models with those assumptions. Before I pulled the plug, I ran a bunch of models with various assumptions to increase my level of confidence. Because of the ACA, which kept me reigned in, plus kind Mr. Market, I'm way ahead of those original models.

[Gumby]

Although it is a probably unnecessarily pessimistic, and I don't recommend it for others, my planning always assumed zero for social security, which I will actually start in two months. It also assumed that the state would stop paying our pensions. Right now, social security and pensions are more than enough to support the same lifestyle we enjoyed prior to retirement. But, should that pension/SS money stop coming in the door, we also have enough in our portfolio (at a 4% WR) to continue along in retirement with the same standard of living. But, then, I am often a belt and suspenders kind of guy. One thing I don't want is to be forced to return to work, and I figure that my plan has ensured that I won't.

Edit to add: I also never have included the (substantial) value of our house in our portfolio value.

[corn18]

Quote:

Originally Posted by Gumby Although it is a probably unnecessarily pessimistic, and I don't recommend it for others, my planning always assumed zero for social security, which I will actually start in two months. It also assumed that the state would stop paying our pensions. Right now, social security and pensions are more than enough to support the same lifestyle we enjoyed prior to retirement. But, should that pension/SS money stop coming in the door, we also have enough in our portfolio (at a 4% WR) to continue along in retirement with the same standard of living. But, then, I am often a belt and suspenders kind of guy. One thing I don't want is to be forced to return to work, and I figure that my plan has ensured that I won't. Edit to add: I also never have included the (substantial) value of our house in our portfolio value.

How much sooner could you have retired had you included SS and pensions?

[gregable]

https://www.ssa.gov/OACT/solvency/provisions/index.html shows some of the solvency suggestions that the SSA advises. One of the most likely ones that I would guess would be to remove the annual cap on taxable earnings to raise more money. This would not be sufficient by itself but would go a long way.

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.

[Gumby]

Quote:

Originally Posted by corn18 How much sooner could you have retired had you included SS and pensions?

Not much. We waited to be pension eligible and to qualify for retiree healthcare, primarily the latter, which is worth about $30k per year based on quotes for equivalent ACA plans (we would not qualify for a subsidy). The healthcare is a lot more valuable than my actual pension.

[Aerides]

Quote:

Originally Posted by KenZ71 Me & DW both 49 years old

That's the most important factor, IMO. And any fire plan that has you financially sound from 50-65(ish) would probably last you well past that. If you had a plan that had you running on fumes in the last year or so before SS kicks in, you had a weak plan to start with.

The further away you are from starting SS, the lower the expectation should be. We RE'd in our mid-40s and never included anything in our FIRECalc. It will be a bonus if/when, and I've no doubt I'll find ways to increase my spending for whatever is there.

Totally different answer if you were 61.

[jldavid47]

Quote:

Originally Posted by Gumby Although it is a probably unnecessarily pessimistic, and I don't recommend it for others, my planning always assumed zero for social security, which I will actually start in two months. It also assumed that the state would stop paying our pensions. Right now, social security and pensions are more than enough to support the same lifestyle we enjoyed prior to retirement. But, should that pension/SS money stop coming in the door, we also have enough in our portfolio (at a 4% WR) to continue along in retirement with the same standard of living. But, then, I am often a belt and suspenders kind of guy. One thing I don't want is to be forced to return to work, and I figure that my plan has ensured that I won't.

That seems a bit draconian, but if it works for you, great. You should also realize that if the feds stop paying Social Security and the state stops paying your pension then the the economy has completely crashed and market has probably dropped by 80%+ so your assumed income from your 4% withdrawals would become a pittance.

Quote:

Edit to add: I also never have included the (substantial) value of our house in our portfolio value.

Me either. Our home is something to live in, not dollars to be used in retirement. If we sell and move into some sort of rental situation, then and only then will I include it.

[2017ish]

Quote:

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.

Agree with this. My siblings and their spouses are counting on it. Given that our projected socials are more than they've ever made, it is quite important to them, and in my opinion, they should be pretty safe. OTOH, if means testing is implemented as part of a fix, we are likely to be on the cutting floor. But, who knows...

[H2ODude]

Oh for goodness sake. The conservative assumptions layered on top of conservative assumptions can prevent people from landing on perfectly adequate retirements. I just deleted several paragraphs detailing how (very engineer like) I made such calculations. While my goal was FI, not necessarily ER, when the BS bucket got full I left and now have solid pension I never expected, SS taken at 70, bunch of money because kids got scholarships didn't expect, and IRA/457 that will cost as much in MRD taxes as a frugal couple could retire on. And I'm still looking at the FIDO calculator assuming worst case with a portfolio almost twice when I retired in 2011.

My point is, in retrospect for me and in a lot of posts on this board, I see so much nail biting and conservative assumptions that it can get in the way of achieving goals such as a a pleasant retirement. Which is damn funny coming from me, who has generally followed a pessimistic and financially conservative path. Now I'm trying damn hard to join Robbie and blow some of the bountiful dough that such a philosophy built up. Don't be like me. FWIW, if I were to make a prediction on SS I'd guess FRA might be adjusted and they'd tax it all. As far as I"m concerned...meh.

[finnski1]

Quote:

Originally Posted by H2ODude Oh for goodness sake. The conservative assumptions layered on top of conservative assumptions can prevent people from landing on perfectly adequate retirements. I just deleted several paragraphs detailing how (very engineer like) I made such calculations. While my goal was FI, not necessarily ER, when the BS bucket got full I left and now have solid pension I never expected, SS taken at 70, bunch of money because kids got scholarships didn't expect, and IRA/457 that will cost as much in MRD taxes as a frugal couple could retire on. And I'm still looking at the FIDO calculator assuming worst case with a portfolio almost twice when I retired in 2011. My point is, in retrospect for me and in a lot of posts on this board, I see so much nail biting and conservative assumptions that it can get in the way of achieving goals such as a a pleasant retirement. Which is damn funny coming from me, who has generally followed a pessimistic and financially conservative path. Now I'm trying damn hard to join Robbie and blow some of the bountiful dough that such a philosophy built up. Don't be like me. FWIW, if I were to make a prediction on SS I'd guess FRA might be adjusted and they'd tax it all. As far as I"m concerned...meh.