Does your retirement planning account for Social Security insolvency?

[Member]

Hi,

I'm counting on receiving Social Security in retirement. The recent 2021 Social Security Trustees report now says the Old-Age and Survivors Insurance part of Social Security will only be able to pay 76% of benefits as of 2034. I assume one of the worst case scenarios, that politicians won't do anything about this and benefits will be reduced.

To account for this in my planning I use a calculation like this:

(Amount I expect to receive between now and 2033 +
76% of amount I expect to receive between 2034 and death) / years of retirement

I allocate the result of this calculation to the "income" side of my expenses calculation. I don't do anything about cost of living adjustments.

Are any of you accounting for a benefits reduction in your retirement planning? How are you doing it?

Thanks,

--
Dan

 

[jkern]

No, since I cannot accurately predict the outcome of SS, I use the numbers today for all planning purposes. Luckily in my case, I'm solvent without SS.

 

[SecondCor521]

I think people vary in how they treat SS depending principally on their age and what other assets they have.

For people with enough other assets, many here ignore SS for planning purposes and just treat SS as gravy. Some younger folks might also ignore SS because it's far away in time and may not be there.

Broadly speaking, I think that including it at some de-rated amount is a common approach.

I'm 52, and while I now don't really need it for my plan to succeed, I incorporated it in my spreadsheet years ago when I was wanting my FIRE date to get here sooner. I leave it in now because it's easier than changing my spreadsheet again.

I do a similar thing, but somewhat different:

1. I take my age 70 monthly benefit from age 70 to age 85.

2. I multiply that monthly amount by a number to account for the uncertainty associated with the solvency issue. This is one of the inputs on my dashboard, and is currently set at 60%.

3. I then take the NPV of those future monthly cash flows and add this NPV to my FIRE stash total.

4. I then calculate how much I'm spending relative to that FIRE stash number. Usually this number is around 2%, and I call this my gross WR%.

5. I have other income (non-portfolio, non-SS), that I then subtract from the answer in 4. Usually this is around 1%, and I can this my net WR%.

 

[Out-to-Lunch]

I just "run the numbers" both with and without the haircut. The results differ a little, but I can live comfortably either way.

 

[RetiredHappy]

Maybe it depends on your age. If you are younger you may want to consider the drop in your planning.

For us, by 2034, much of our discretionary spending should be reduced - travel and likely to drop our country club membership when my husband is no longer able to golf and I can always play at some really excellent public courses where we live. The amount saved will exceed the higher of the 2 Social Security payments.

 

[old medic]

I just "run the numbers" both with and without the haircut. The results differ a little, but I can live comfortably either way.

Same here... It will be tighter without SS but looks like we can manage.

 

[38Chevy454]

I figure a SS haircut may be a result, or some form of means testing to justify reduced benefits. SS will be there, the question is just what percentage of the current estimated amount.


If I was so close on numbers a haircut on SS would be so detrimental, that indicates I should have had more savings to begin with. Fortunately I considered the reduced SS and am confident in my planning.

 

[REWahoo]

No, I'm not planning for it, but the income from our annual RMDs is substantially more than we spend and would more than compensate for any projected SS "haircut".

 

[GravitySucks]

Hope it's still whole
Plan on the cuts as it's more than possible.

Mel Brookes had it right:
Hope for the best;
Expect the worst.

 

[Walt34]

I'm pretty sure SS will always be there. Even those for whom SS is so far off in the future they pay it no mind at all, the possibility of Mom & Dad having to move in with them is enough incentive that they will hound their congresscritters to fix it before their parents have to move in with them.

 

[MRG]

I've ran the numbers with from 0-100% SS and we're OK either way. Life with 100% of SS is much better than life with 0%. As far as what the future holds for the trust fund I'm not too worried. This board has fixed the problem many times.

 

[Still Learning]

Our planning for retirement was always very conservative so did not included SS or Pension forcing us to put money heavily into investments/savings, paying off all loans, purchasing newer cars/retirement boat/investing in home updates so initial retirement years could be easy financially.


Planned to retire at 63 but my job restructured at 61. Finally putting SS & Pension into the mix found the package paid all our bills plus about 40% of discretionary spending.

 

[Sojourner]

When I plug my numbers into FIRECalc and other retirement tools/calculators, I put in roughly half of what I expect to get from SS (based on current estimates). I also use conservative estimates for other future income (e.g., no inheritance) and liberal estimates for future spending (e.g. no reduction in spending as I age past my late 50s). Then I look for the highest level of spending with a (historical) 100% success rate, and I consider roughly 85-90% of that to be my safe annual spending limit.

 

[rodi]

I've run my plan with 100% SS, 50% SS, and zero SS. Plan survives the first two with lots of headroom. That last one would require some very minor belt tightening (a few thousand a year). ...But our plan also didn't reduce spending as kids move out... and we just had one kid move out last month and the other heads for college next week... So groceries and hot water bills will definitely be dropping. (College is paid from a separate pot of 529 money)

 

[youbet]

I count all of my SS in my plan. Of all my retirement income sources, it seems like the least likely to throw me a curve ball. I'm more wary of my FIRE portfolio performance and my corporate pension and DW's State of Illinois pension.

 

[RunningBum]

I include a benefit reduction in my planning.

 

[Koolau]

2034 will be the 29th year of my 30 year retirement plan (I'll be 87) so I'm not too worried about SS though I'm reasonably certain politicians will still be buying votes with our tax dollars - so SS will be funded in some fashion. I could be wrong. I was once, so YMMV.

 

[Texas Proud]

Just my opinion but if your retirement is at risk with the haircut to your SS payments then you probably do not have enough...


Heck, I just pulled my latest SS stmt 2 days ago... I will be getting more than I thought...




BTW, if they can talk about spending 3.5 trillion on top of the 6 or so trillion they have paid out since the pandemic they can move money to the SS system... and I bet there is more voting strength for the people who are getting SS than who would get the other benefits....

 

[Niuatoputapu]

To account for this in my planning I use a calculation like this:

(Amount I expect to receive between now and 2033 +
76% of amount I expect to receive between 2034 and death) / years of retirement

Short answer - I incorporate a 2034 haircut of SS benefits into my calculations. SS benefits are an important income source in my plan, but I plan for the cut and hope to be pleasantly surprised if it is avoided.

Longer answer - my "plan" includes two main scenarios, one jointly and one surviving spouse. SS benefits are important to each, but other assumptions have greater variability and impact. I tend to be conservative with all of my assumptions - plan for the worse, hope for the best. I hope my plan underestimates investment return, inflation rate, income tax rate, social security benefits and longevity while overestimating spending assumptions. In my surviving spouse scenario, I project my 2022 death. I hope that too is proven to be overly pessimistic. I await to be pleasantly surprised.

I think I understand the formula the OP uses (quoted) but I note it would not work for me. I need to have year-by-year projections rather than entire-retirement-period calculations. Year-by-year allows me to better plan Roth conversions, IRMAA management, income-tax projections, effect of early demise of either spouse, and it makes it easier to ripple through updates. A 2034 reduction of SS benefits will be unwelcomed, but it will allow me to do greater Roth conversions that year.

 

[Midpack]

I use 70% in planning for Soc Sec benefits, but fortunately odds are we won’t need that income and it will be largely taxed away anyway - fingers crossed.

 

[Dtail]

Run it at 100% and at 76%.
We do need some of it in our retirement plans.

 

[rk911]

...Are any of you accounting for a benefits reduction in your retirement planning? How are you doing it?

yes. we are living on our SS, defined benefit pensions and, now, IRA RMD's. we are living well beneath our income and have a positive cashflow. but when we were planningi our retirememt i assumed SS would implode and that our Illinois state govt pensions would follow down that same path forcing us to rely on savings and investments. resuits showed we were good to go so we pulled the trigger. that was 16-years ago and we're still here.

 

[Teacher Terry]

I really doubt it will happen. Too many people are dependent on it. Due to WEP my SS is only 377/month. I would be worried if my pension was uncertain.

 

[RetireeRobert]

No, not planning on any reduction for my "planning" since I have already been retired for 21 years!

 

[scrabbler1]

I have been living fine off the taxable part of my portfolio for the last 13 years (because I am not old enough to begin having unfettered access to my rollover IRA). My main ER spreadsheet takes me only to age 65, which is still 7 years away. I have my 3 "reinforcements" awaiting me: the aforementioned IRA, SS, and my frozen company pension. Even with only 2 of those, I will still be fine, as I have seen what the longer-term outlook is from Fidelity's RIP program with all 3 reinforcements.