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Social Security & FIRE Planning
01-17-2021, 03:51 PM
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#1
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Recycles dryer sheets
Join Date: Jan 2018
Posts: 186
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Social Security & FIRE Planning
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.
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01-17-2021, 03:57 PM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,184
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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.
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01-17-2021, 04:01 PM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 17,707
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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.
__________________
Ko'olau's Law -
Anything which can be used can be misused. Anything which can be misused will be.
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01-17-2021, 04:11 PM
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#4
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Recycles dryer sheets
Join Date: Nov 2015
Location: Upper Cape
Posts: 384
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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.
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01-17-2021, 04:16 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Apr 2012
Location: Nashville
Posts: 2,504
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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.
__________________
OMY * 3 2ish Done 7.28.17
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01-17-2021, 04:22 PM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,184
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Quote:
Originally Posted by 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."
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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.
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01-17-2021, 04:33 PM
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#7
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Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Syracuse
Posts: 3,501
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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.
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+1
__________________
“No, not rich. I am a poor man with money, which is not the same thing"
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01-17-2021, 05:02 PM
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#8
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Recycles dryer sheets
Join Date: Jan 2018
Posts: 186
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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.
__________________
3 ish years to FIRE, mentally ready now!
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01-17-2021, 06:24 PM
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#9
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Thinks s/he gets paid by the post
Join Date: Mar 2013
Location: Southern California
Posts: 3,995
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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.
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01-17-2021, 06:35 PM
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#10
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Recycles dryer sheets
Join Date: Jul 2017
Posts: 98
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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.
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01-17-2021, 06:42 PM
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#11
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Thinks s/he gets paid by the post
Join Date: Nov 2013
Location: Twin Cities
Posts: 3,927
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Quote:
Originally Posted by 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.
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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.
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01-17-2021, 06:46 PM
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#12
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Thinks s/he gets paid by the post
Join Date: Dec 2018
Location: DuPage County IL
Posts: 2,697
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Quote:
Originally Posted by 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.
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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.
__________________
Rich
Ham Radio, Sport Pilot, RVer
FIRE: 8/11/2005, age 55y,1d
Dispatcher, then shift supv, then administrator for a regional 9-1-1 call center
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01-17-2021, 06:47 PM
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#13
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Thinks s/he gets paid by the post
Join Date: Mar 2013
Location: Southern California
Posts: 3,995
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Quote:
Originally Posted by Markola
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.
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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.
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01-17-2021, 09:05 PM
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#14
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Thinks s/he gets paid by the post
Join Date: Dec 2016
Location: DC area
Posts: 2,464
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Quote:
Originally Posted by Ready
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.
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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.
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FI and Semi-ER March 24, 2017
Consulting to stay engaged
"All models are wrong, some are useful." - George Box
“There is always a well-known solution to every human problem: neat, plausible, and wrong.” - H.L. Mencken
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01-17-2021, 09:16 PM
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#15
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Thinks s/he gets paid by the post
Join Date: Mar 2013
Location: Southern California
Posts: 3,995
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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.
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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.
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01-17-2021, 09:33 PM
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#16
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Thinks s/he gets paid by the post
Join Date: Nov 2013
Location: Twin Cities
Posts: 3,927
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Quote:
Originally Posted by Ready
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.
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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.
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01-17-2021, 09:49 PM
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#17
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2006
Location: Boise
Posts: 7,863
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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.
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"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
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01-17-2021, 10:06 PM
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#18
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Thinks s/he gets paid by the post
Join Date: Dec 2018
Location: DuPage County IL
Posts: 2,697
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Quote:
Originally Posted by Ready
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.
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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.
__________________
Rich
Ham Radio, Sport Pilot, RVer
FIRE: 8/11/2005, age 55y,1d
Dispatcher, then shift supv, then administrator for a regional 9-1-1 call center
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01-18-2021, 05:12 AM
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#19
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Thinks s/he gets paid by the post
Join Date: Oct 2010
Posts: 2,459
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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.
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For me experiences are not good or bad, just different
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01-18-2021, 05:19 AM
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#20
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2018
Location: Tampa
Posts: 11,197
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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.
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TGIM
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