Social Security for tail of baby boom

[BigE]

My wife and I are at the tail of the baby boom (born in '62 and '63 respectively). I know this is engaging in educational guessing (speculation if you will) but what should I enter for SS in firecalc? 0, full estimated benefits or something in between. One of the reasons this in on my radar today is that I just got my annual statement and it's 2500/month age 67 benefits. Why am I so skeptical that this number will be reduced or we will inflate our way out of this fiscal mess without any COLA for SS and thereby effectively reducing payouts?

 

[REWahoo]

If I were in your shoes I'd enter 75% of the estimated amount. The gloom and doom folks will tell you to enter zero, but I don't see any reasonable way SS benefits could be reduced beyond 25% for new participants without blood in the streets.

 

[GrayHare]

75% sounds reasonable to me too. Inflation is the easiest way out of the fiscal mess, so is the most likely solution. IMO the Fed's easy money policy of today is prepping exactly for that.

 

[MooreBonds]

If I were in your shoes I'd enter 75% of the estimated amount. The gloom and doom folks will tell you to enter zero, but I don't see any reasonable way SS benefits could be reduced beyond 25% for new participants without blood in the streets.

+0.90

If I were in your shoes, I might use a slightly more conservative number like maybe 67%, or even 60%, and here's why: we KNOW that the current system as-is will only allow for paying out roughly 75% of the benefits for those in their 40s and younger (? I don't recall the cutoff year where that starts to happen). As a result, SOMETHING will be done to shore up the system...but whatever that something is, it will be guaranteed to hit you in some form that you probably aren't including in your model. It could be solely through higher SS taxes (reducing your net income, AND possibly reducing future raises because your employer is taking a hit, too). It could be partly higher SS taxes, partly higher salary cap. It could be an even higher full-retirement age (which makes you wait longer to receive SS, and hurt your expected budgeted income). It could be means-testing by taking more SS benefits from higher income SS retirees. Whatever the magic combination is, it will likely NOT be predicted by your budget....which is why a slightly more conservative number on SS benefits for someone your age would help offset whatever the legislative solution is to shore it up.

As someone born in '76, I personally am going to use probably a 0.50 multiplier on my SS benefit projection for safety's sake. Far more than $0, but definitely want to err on the conservative side of things. Of course, it's at least a doubling of CPI by the time I make it to age 70 for maxing out delayed benefits (unless they raise that, too, before it arrives), so if I do get to retire early as planned, the SS might allow for some nice upgrades to my life, but not provide a hefty leg of a 3-legged stool.

 

[Texas Proud]

I am with MooreBonds..... 2/3rds popped into my head when you asked the question...


I think that if they did not fix things, I have heard they can pay in the 80% range, but who knows for sure.... to me, a little safety margin here is good...

Plus, you do not know how much Medicare will cost then... this makes some room for a probable increase...

 

[Animorph]

If I were in your shoes I'd enter 75% of the estimated amount. The gloom and doom folks will tell you to enter zero, but I don't see any reasonable way SS benefits could be reduced beyond 25% for new participants without blood in the streets.

+1.

I think that is a little conservative since you are close enough to FRA that you shouldn't see the full hit of any adjustments to SS. SS says they should be able to cover 75% (IIRC) after the trust fund runs out, so it's a reasonable target. Adjust up or down if you like.

 

[Calico]

.......One of the reasons this in on my radar today is that I just got my annual statement and it's 2500/month age 67 benefits......

Did you receive your annual statement in the mail? I thought the social security administration stopped mailing statements to everyone a couple of years ago; then I heard they were going to resume mailing them this year, but only to folks 60 and older.

If you received it in the mail they must be mailing them out en masse again, which would be a welcome change.

 

[Khufu]

>> Inflation is the easiest way out of the fiscal mess, so is the most likely solution.

Presumably after they have managed to disable the COLA provisions of SS, right?

 

[Brett_Cameron]

For planning purposes, I would use 100% of what the SSA projects you would receive. This amount will vary over your remaining working career. The SS Trustees and Congress will make changes to the revenue and benefit amounts over the decades as they always have. You will need to adjust your plan accordingly as they do.

 

[BigE]

Thanks for all the great input. Calico, I received an email notice, so I did a check on the website. The plan is to remain in the workforce, where I yearly hit the max on FICA, for the next 5 years (the always subject to change "5 year plan"), then hopefully ER. Although I'm soliciting opinions and best guesses, this is actually helpful for planning my ER. Thanks again.

 

[Cb]

We were born in '59 & '60. I used 75% of the SSA's estimates when I began ER planning a decade ago, but use 90% these days because we are now so close to the hands-off age of 55.

I assume 100% SS benefits will be taxed as ordinary income.

 

[MasterBlaster]

For what it's worth, The Simpson-Bowles deficit reduction commision plan included, among other things, cuts to the top SS quintile of about 30%, the second quintile had about an 8 percent cut, other (lower) quintiles were relatively unscathed.

I suspect that something like this is in the pipeline inevitably coming at us.

It would be prudent to plan for something of this magnitude. To do otherwise just isn't prudent.

 

[MasterBlaster]

Did you receive your annual statement in the mail? I thought the social security administration stopped mailing statements to everyone a couple of years ago; then I heard they were going to resume mailing them this year, but only to folks 60 and older.

If you received it in the mail they must be mailing them out en masse again, which would be a welcome change.

Those statements originally had a bunch of wording like "Social Security is there for you... you can plan on it"

The later statements had wording like "These are your benefits under present law...your benefit may be different".Then they went on to discuss the SS 75% cashflow a couple of decades out.

 

[Rustward]

Those statements originally had a bunch of wording like "Social Security is there for you... you can plan on it"

The later statements had wording like "These are your benefits under present law...your benefit may be different".Then they went on to discuss the SS 75% cashflow a couple of decades out.

Are you implying that SS tried to sneak in the wording about the shortfall? To be fair to SS, they didn't sneak anything in while we weren't looking.

The change to which you refer started with the 2000 statements.

From my December 27, 2000 statement:
"Social Security now takes in more taxes than it pays out in benefits. The excess funds are credited to Social Security's trust funds, which are expected to grow to over $4 trillion before we need to use them to pay benefits. In 2015, we will begin to pay out more in benefits than we collect in taxes. By 2037, the trust funds will be exhausted and the payroll taxes collected will be enough to pay only about 72 percent of benefits owed."

The wording in all statements since 2000 is essentially the same, however some of the numbers are different, but not by a lot. The "70-something percent of benefits owed" wording has been around for over a decade.

 

[MasterBlaster]

Are you implying that SS tried to sneak in the wording about the shortfall? To be fair to SS, they didn't sneak anything in while we weren't looking.

I'm not implying anything...

Somewhere along the line though, reality set in on SS's situation, and the wording changed to relfect that.

 

[Rustward]

I'm not implying anything...

Somewhere along the line though, reality set in on SS's situation, and the wording changed to relfect that.

I guess I'll have to quote myself:

From my December 27, 2000 statement:
"...By 2037, the trust funds will be exhausted and the payroll taxes collected will be enough to pay only about 72 percent of benefits owed."

...The "70-something percent of benefits owed" wording has been around for over a decade.

 

[Midpack]

I use 50% to be conservative as I'd rather build in upside surprises vs downside in our plan. However, most of what I've read over the years seems to suggest 70% worst case for our generation. Wish our leaders would just act so we had a better idea what to plan for...

 

[Calico]

Those statements originally had a bunch of wording like "Social Security is there for you... you can plan on it"

The later statements had wording like "These are your benefits under present law...your benefit may be different".Then they went on to discuss the SS 75% cashflow a couple of decades out.

For several years now I have taken the figures on the statements with a huge grain (truckload?) of salt. I am not counting on the amounts listed by any means. I am 57, so depending on the news cycle and the day of the week, theoretically I am in the "protected" group which would not see a reduction in benefits. Time will tell.

I view social security (whatever amount it turns out to be) as supplemental retirement income. I am among the very fortunate few who still have a solid employer defined benefit pension plan. The plan is fully funded, and shows no signs of going away. My employer is a rare breed, and I give thanks every single day for the pension plan.

 

[Calico]

....Calico, I received an email notice, so I did a check on the website.....

Ahh, thanks for clarifying that!

 

[MichaelB]

We won't collect much because we didn't pay in for many years, but I expect to receive 100% of what the current formula shows. OTOH, my assumption is it probably won't be worth much, I expect it to lag the real rise in our cost of living, and it will also probably be taxed more highly.

 

[NW-Bound]

Well, Greece has cut back quite a bit on pensions, unemployment benefits, and minimum wages. So far, not that much blood flowing on the streets, but there has been plenty of rocks, bricks, Molotov cocktails, etc... Bleak...

When there's no more money, what's a society to do? The unemployment rate of young Greeks under the age of 25 is 50%! I am surprised they do not revolt against the older pensioners who are getting "free money". Well, on second thought, the unemployed young is most likely staying at home, still living off their parents' or grandparents' meager SS payments too. Bleak...

 

[youbet]

Reductions in SS payouts are likely to be means related. Therefore if I was retiring on a very low income and with few assets, I'd assume I'd recieve a substantial portion of current SS estimated payouts, say 90% or even 100%. If I was retiring into a lucrative situation, say one of those 1% types, I'd assume 50% tops.

 

[GrayHare]

>> Inflation is the easiest way out of the fiscal mess, so is the most likely solution.

Presumably after they have managed to disable the COLA provisions of SS, right?

Of significance is SS's COLA is based not on CPI-U but rather on CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers). During the ~30 years since the 1982-4 base period for current CPI calculations, CPI-W has lagged CPI-U.

 

[Chuckanut]

My predictions: 1.) People currently retired and those over 55 will get everything promised. 2.) The SS retirement age will be slowly raised for those under about 55 years to eventually be about 69 or 70 for full retirement. 3.) Taxes on SS income will be raised to help pay for the SS benefits.

 

[NW-Bound]

The much larger financial problem facing the US is Medicare and not SS. The former will bankrupt us much sooner than SS.

So eventually, when we figure Medicare out, the SS is a much easier problem! And how can SS be fixed? Did someone just say "means testing"?

I recently got interested in the Australian system, from some posts in this forum made by some Aussies.

Australia has always had income and asset testing. I do not know how their system is funded, but the payout looks very austere compared to the US. Here's the summary of their "Age Pension" for a single person (from my research on the Web, and I may have errors).

1) Pension age: 67 for people who currently are 55 yr old or younger. No payment for early retirees.

2) Max payout: $695.3/fortnight (2 weeks) for a single, and it can only be reduced from there. This works out to $18K/yr max payment.

3) Income testing: payout is reduced 50 cents for every dollar of income above $152 per 2 weeks. So, when a single has income above $1542.6/fortnight ($40K/yr), he receives no pension.

4) Asset testing: payout is reduced $1.50/fortnight for every $1000 of asset above $696K, if our single retiree owns a home. Assets include retirement funds, cars, bank or brokerage accounts, boats, planes, secondary homes, etc...​

It was not clear to me if having a retirement fund (like the 401k in the US) would cause a hit both in income and asset tests (items 3 and 4 above), meaning the pension getting reduced both from the value of the 401k and the income generated from such 401k.

In any event, if the US adopts the same system as the above, I guess I will not get anything from SS unless I spend down my stash first.

So, do we do 10%WR (hey, enjoy it while you still can), then figure out how to live on $18K/yr after we are broke? Bleak...