Social Security for Millennials

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Rainmaker41
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Social Security for Millennials

Post by Rainmaker41 » Mon Apr 03, 2017 4:59 pm

Forum Rules Disclaimer:

If we say anything ‘political’, including the discussion of hypothetical changes to current law, the thread will be locked. Therefore, it is utterly forbidden for any younger Boglehead to (publicly on this forum) discuss plans for anything other than what current Social Security law dictates will happen when planning our retirement.

On this basis, let us look to what the Social Security Administration states will happen in the absence of any change to current law.

“The projected hypothetical combined OASI and DI Trust Fund asset reserves increase through 2019, begin to decline in 2020, and become depleted and unable to pay scheduled benefits in full on a timely basis in 2034. At the time of depletion of these combined reserves, continuing income to the combined trust funds would be sufficient to pay 79 percent of scheduled benefits.”

Current law, official SSA (by definition not ‘political’) source:

https://www.ssa.gov/OACT/TR/2016/II_A_highlights.html

Stating on this forum that we will receive any amount whatsoever other than 79% of our promised Social Security benefits, at any age whatsoever other than what current law says will be our Full Retirement Age of 67, is ‘political’ and not allowed. Please refrain from quoting any passage from the above link that mentions anything about hypothetical changes to current law the SSA provides as options. I request that no poster to this thread make any conjecture on changes to the future of Social Security, here defined as assuming, stating, or implying anything other that the 79% of benefits at FRA of 67 as stipulated under current law.

-End of disclaimer-

Fellow Millennials:

How do you plan to compensate for this 21% shortfall in Social Security retirement benefits as dictated by current law?

Say that Social Security replaces 40% of pre-retirement income for the typical family.

https://www.fool.com/investing/general/ ... place.aspx

Discounting this to 79% of the benefit, we are left with 31.6% of pre-retirement income.

Another common rule of thumb is to aim for 85% of your pre-retirement income in retirement. Putting that together, we are left with the ‘save 15% starting in 20s’ rule of thumb being roughly intended to replace 45% of your pre-retirement income. Each 1% saved would thus provide roughly 3% of pre-retirement income. However, current Social Security law dictates that we will need to make up for the shortfall of 8.4% (21% benefit reduction of 40% pre-retirement income).

In other words, millennial Bogleheads cannot use the 15% rule of thumb, but must add ~ 3% to their savings rate in order to compensate. If we state that we believe the 15% rule of thumb is applicable to us, we are, by definition albeit indirectly, being ‘political’, because we would be strongly implying that there will be a change to current law. Absent such a concluded change in law, we must therefore talk on this forum not of the ‘15% rule of thumb’, but rather the ‘18% rule of thumb’, when referring to Millennials’ retirement planning and general savings rate guidelines.

Personally, I would like to aim for 100% of pre-retirement income in retirement rather than 85%; I won’t have a mortgage, but I might have higher healthcare costs, want to travel more, etc. So, I should aim for a minimum savings rate of 18% + (15/3)% = 23%. I’ll try for more, of course, but I don’t have a crystal ball that tells me how my career and family situation might pan out.

Are any other Millennials here using 18% rather than 15% as their baseline 'replace 85% of income including Social Security' target for these reasons?

***Edit*** I recognize using %'s of current income rather than projected expenses is a clumsy way to set targets, but those are how 'common rules of thumb' are expressed. My intent was to use those rules of thumb as a basis for theoretical discussion; complete accuracy was never expected.
Last edited by Rainmaker41 on Wed Aug 16, 2017 11:41 am, edited 1 time in total.

Theoretical
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Re: Social Security for Millennials

Post by Theoretical » Mon Apr 03, 2017 5:12 pm

Regardless of the politics, from a strictly financial perspective, our retirement (30-odd years away) planning is based on getting nothing from SS.

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Re: Social Security for Millennials

Post by mhalley » Mon Apr 03, 2017 5:14 pm

I think basing retirement savings on percent of income is not ideal. Instead, base it on expenses. The rule of thumb there is 25 x expenses, i.e. 4% withdrawal rate.
I have heard some people recommend not considering ss at all in there reirement planning.
"It's likely that political leaders will try to make changes in the system to improve its long-term financial health, but such changes are impossible to predict. And even in the best possible scenario, Social Security almost certainly won't pay you enough to live on in retirement. So if you're under 55 and want to be conservative, don't factor in Social Security when making your calculations about how much to save and invest for retirement. Set aside as much of your own money as you can in retirement savings accounts and invest it wisely. Bottom line: Your financial security in retirement is your own responsibility."

http://money.cnn.com/retirement/guide/S ... ndex19.htm

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Re: Social Security for Millennials

Post by knpstr » Mon Apr 03, 2017 5:30 pm

I'm not basing my retirement plan on "income replacement" since I don't live on my entire income now.

I'm basing it on being able to pay, at minimum, my expected expenses. Hopefully more than that, but for no reason than to have a margin of safety above the minimum. I don't include SS in this plan.

Also, I "save" (save/invest/mortgage debt pay down) much more than 18% of my current income.

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Re: Social Security for Millennials

Post by TXJuice » Mon Apr 03, 2017 5:41 pm

Theoretical wrote:Regardless of the politics, from a strictly financial perspective, our retirement (30-odd years away) planning is based on getting nothing from SS.
+1

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Re: Social Security for Millennials

Post by MindTheGAAP » Mon Apr 03, 2017 5:43 pm

I forget that SS could even be an option for us when it comes to planning. I'm the sole breadwinner in the house so I plan using that as our baseline... that I need to figure out how to stash enough for us to be comfortable in the absence of SS, not in addition to. If I'm successful and we get some monthly income from it, I'll be thrilled. If not? Well, we'll be prepared.
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Re: Social Security for Millennials

Post by Blender » Mon Apr 03, 2017 6:18 pm

TXJuice wrote:
Theoretical wrote:Regardless of the politics, from a strictly financial perspective, our retirement (30-odd years away) planning is based on getting nothing from SS.
+1
SS will be the gravy on our steak and potatoes. Even without it we will still be enjoying a good meal.

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Re: Social Security for Millennials

Post by Nate79 » Mon Apr 03, 2017 7:27 pm

Was one locked thread not enough on this topic?

viewtopic.php?f=2&t=215491

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Rainmaker41
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Re: Social Security for Millennials

Post by Rainmaker41 » Mon Apr 03, 2017 7:44 pm

Nate79 wrote:Was one locked thread not enough on this topic?

viewtopic.php?f=2&t=215491
I quite intentionally did not say anything political. I just asked how other people here are accounting for the reduction in Social Security benefits to 79% of the promised amount, as provided in current law, in their own retirement planning. This is analogous to asking how one might account for a private defined benefit pension whose solvency is less than stellar. On the other hand, if I stated that I thought particular changes to current law would be made that had the effect of reducing the projected Social Security benefits shortfall, then I would be discussing politics. I am not making any conjecture whatsoever on the future of Social Security at variance with projections under current law, nor am I advocating any particular political or policy action.

If older people here are allowed to ask about Social Security claiming strategies, why aren't younger people allowed to ask about what is ultimately the same topic? Politics has nothing to do with it, and there is no justification for this thread to be locked unless a post is made which advocates some *political* policy change which results in something other than 79% of earned Social Security benefits at a full retirement age of 67 for any person retiring after 2034.

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Re: Social Security for Millennials

Post by LadyGeek » Mon Apr 03, 2017 7:48 pm

Thread locked for moderator review.

Update: See below.
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Re: Social Security for Millennials

Post by LadyGeek » Mon Apr 03, 2017 9:51 pm

First, here's the rationale why we hold to a "no politics" policy and how we moderate discussions: Re: Yellen: "We're taking a look at negative interest rates." Please review it carefully.

The purpose of this forum is to help members with personal finance and investing. If an important topic arises that is in-conflict with our policy, we will attempt to strike a balance which allows the discussion to proceed.

We have considered not only the OP's attempt to set the scope of the discussion, but members who have reported posts requesting the thread to be unlocked. (Another way is to PM a moderator with your request and explain why the thread should be unlocked). We do listen.

The moderators now have a consensus. This thread is unlocked to continue the discussion allowing Millenials to express their financial approaches to dealing with a projected social security shortfall.

To be clear, this thread will be monitored for off-topic (political) comments. The moderators will take action on these comments.
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Re: Social Security for Millennials

Post by zaboomafoozarg » Mon Apr 03, 2017 9:58 pm

Rainmaker41 wrote:How do you plan to compensate for this 21% shortfall in Social Security retirement benefits as dictated by current law?
My plan is to earn enough over my whole career to get to the second bend point of the SSA calculation (about $2M), and then discount my stated payout of SS to about 50%.

I don't expect it to drop below 80% but figure the 50% is safer. I certainly don't think it will go to 0% as so many people here do.

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Re: Social Security for Millennials

Post by Choy » Mon Apr 03, 2017 10:24 pm

Honestly, I'm not even thinking about it. I'm not planning to rely on social security nor am I calculating how much I need to save. Retirement is so far in the future all I can do now is live below my means and save as much as I can. As I get closer to retirement (say within 20 years) I can more effectively plan for any short falls if needed, but I'm making an assumption that my generally high savings rate and current lifestyle will leave me way ahead of the game.

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Re: Social Security for Millennials

Post by MoonOrb » Mon Apr 03, 2017 10:31 pm

If I must, I'll do some combination of working a few more years and spending less in retirement, but this isn't a decision I expect to need to make until I get within 5 years or so of impending retirement and can see for myself whether there's actually a shortfall.

Current projections would put retirement age at 58; our savings rate is already high and I don't want to make it higher right now.

If I'm willing to work into my 60s I won't have to worry about a shortfall at all.

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Re: Social Security for Millennials

Post by Nate79 » Mon Apr 03, 2017 11:37 pm

Rainmaker41 wrote:
Nate79 wrote:Was one locked thread not enough on this topic?

viewtopic.php?f=2&t=215491
I quite intentionally did not say anything political. I just asked how other people here are accounting for the reduction in Social Security benefits to 79% of the promised amount, as provided in current law, in their own retirement planning. This is analogous to asking how one might account for a private defined benefit pension whose solvency is less than stellar. On the other hand, if I stated that I thought particular changes to current law would be made that had the effect of reducing the projected Social Security benefits shortfall, then I would be discussing politics. I am not making any conjecture whatsoever on the future of Social Security at variance with projections under current law, nor am I advocating any particular political or policy action.

If older people here are allowed to ask about Social Security claiming strategies, why aren't younger people allowed to ask about what is ultimately the same topic? Politics has nothing to do with it, and there is no justification for this thread to be locked unless a post is made which advocates some *political* policy change which results in something other than 79% of earned Social Security benefits at a full retirement age of 67 for any person retiring after 2034.
That there will be any change to SS is conjecture at this point and will be a political decision. This will be a future law change for any SS change. It has happened in the past and may or may not happen in the future. How the politicians decide to change the law to shore up SS is unknown at this point. To try to plan for an unknown decrease amount in SS and an unknown method of decrease is crazy. Anything can change in the next 20-30 years and to think any plan at this point will hold for that long is just not possible.

The only thing you can do is save as much as possible.

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Re: Social Security for Millennials

Post by Chadnudj » Mon Apr 03, 2017 11:56 pm

I'm not worried about it at all. Why?

1. I'm 37, and do not have near 25-33 times expenses saved. Hell, I'm not entirely certain what my long term expenses will be, what with having two kids under the age of 3.

2. I'm healthy and currently employed, and generally speaking enjoy my work/going to work.

3. 2034 is a long ways away. Budget projections are worthless even ten years out, much less 17 or more.

4. Social Security is arguably the most popular governmental program, and seniors disproportionately vote.

Add those all together, and you have a scenario where I'm not near enough to retirement to worry about it given my savings and the fact that I kinda like my job, and that I think the concern is overblown given the inaccuracy of projections such as this and the fact that politically speaking a fix to shore up the program is inevitable (and, frankly, very easy to accomplish...but I won't say more to avoid beginning a political debate).

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Re: Social Security for Millennials

Post by likashing » Tue Apr 04, 2017 12:11 am

Personally, I plan for $0 social security since it is not something I can depend on. It will be icing on my retirement cake.

I have also once used social security's site to get a SS estimate, then entered 50% of it into personal capital just for fun.

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Re: Social Security for Millennials

Post by TX_Man » Tue Apr 04, 2017 4:49 am

Social Security will be considered a "bonus" should it still exist when I am retired. My goal is to ensure my accounts are sufficient for retirement independent of social security. In short, hope for the best and plan for the worst.

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Re: Social Security for Millennials

Post by Moneybags1 » Tue Apr 04, 2017 6:19 am

Millenials, have no fear for the system will blow up long before you guys approach elderhood. Your parents, most according to the stats are not ready for retirement and will pay a harsh price when cuts come. This is an important issue as this subject alone is a strong headwind to economic growth in an economy depending on ever rising debts. Your generation will soon be the biggest political bloc and will have a say in what others get and what you might lose. The problem as I see it, it's easy for the powers that be to legislate who gets what seems to forget that older people are only as well off as the younger people who will be increasingly paying the bills, ditto for the folks who are expected to drive economic growth. I think more discussion needs to be about these problems for Bogleheads of all ages. [OT comment removed by moderator prudent]
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Re: Social Security for Millennials

Post by Call_Me_Op » Tue Apr 04, 2017 6:49 am

Rules-of-thumb that say you need to save a certain amount based upon your salary are, IMHO, totally meaningless. What matters is what you will be spending.

But directly to the original poster's question, I quote the late Harry Browne; "Consider Social Security to be found money."
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Re: Social Security for Millennials

Post by tibbitts » Tue Apr 04, 2017 7:39 am

79% of social security won't matter for younger Bogleheads compared to zero to two percent real returns on investment and zero salary growth for the rest of your life. The latter is what you need to be worried about. Not making predictions, just saying that 79% would be a fairly trivial issue for most on this forum relative to other obstacles to wealth.

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Re: Social Security for Millennials

Post by drg02b » Tue Apr 04, 2017 7:42 am

It's not that I don't believe SS will be there (I am sure it will make it.). I just don't really think about it. Partially because it's not something I directly control, and partially because for my early FI goals, I am focused on fully covering 100% of expenses for 10-15 years off of a SWR. So it's hard to factor delayed payments in.

Technically a millenial, though on the upper limit.

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Re: Social Security for Millennials

Post by Rainmaker41 » Tue Apr 04, 2017 7:57 am

tibbitts wrote:79% of social security won't matter for younger Bogleheads compared to zero to two percent real returns on investment and zero salary growth for the rest of your life. The latter is what you need to be worried about. Not making predictions, just saying that 79% would be a fairly trivial issue for most on this forum relative to other obstacles to wealth.

To be honest this is how I look at it. I aim to invest as much as possible. I ran the numbers for a couple: $11,000 to Roth IRAs for 40 years at 2% real return yields $664,000 at retirement. At a generous 4% withdrawal, that gets $26.5k in annual spending power; $2.2k monthly. That isn't hugely below our essentials budget, so it's a decent baseline. Those assumptions are probably off in unknown ways, and we might not always use Roth, will want Traditional assets to use the 0-10% brackets at least, but for simplicity I like this back of the envelope arithmetic. Figure Social Security will cover 'off-budget' stuff like medical costs, home repairs, etc.

In all likelihood we will need more, but I see no scenario in which less than 'max both our IRAs every year' would be comfortably sufficient.
Last edited by Rainmaker41 on Tue Apr 04, 2017 8:07 am, edited 1 time in total.

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Re: Social Security for Millennials

Post by corysold » Tue Apr 04, 2017 8:07 am

I agree the number is too small to really make any fundamental changes to your planning.

The current average benefit is about $1500/mo. Take 79% of that and you get $1185/mo. Certainly a difference, but assuming SS isn't accounting for all of your retirement, I don't think that $315/mo is really going to make or break your retirement.

Assuming a 4% withdrawal rate and 30 years of work left (at least, as I think the oldest millenial is 36 now?), you'd need to have an extra $100,000 at retirement to make up for that difference.

Some back of the napkin calculations suggest saving an extra $100/mo for the next 30 years would roughly make up that difference. So I suppose if you wanted to plan for the drop, add $100-150/mo into your investments.

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Re: Social Security for Millennials

Post by dsmil » Tue Apr 04, 2017 8:09 am

I've put together a retirement budget and feel like I'll need an income replacement closer to 50%, not 85%. I'm 30+ years away from full SS retirement age, but if income stays consistent, I save 12% of gross income, and I'm getting 5% real return, I should replace 100% of my income. With a 3% real return, I'll replace 70% of my income. Those figures includes receiving 79% of my SS (plus spousal) benefits listed on the quick SSA calculator.

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Re: Social Security for Millennials

Post by AnonJohn » Tue Apr 04, 2017 8:27 am

In light Mike's comment I feel obliged to point out that "Gen X" will be the first people hit by the current projected shortfall in Social Security. Do we get our own thread? :) According to a 2014 Pew Survey Gen X'rs are significantly more pessimistic about retirement than either Millennials or Boomers.

While I'm here, a minor rant. The Census only defines the Baby Boom Generation (1946-64).That had specific, post-war characteristics. The others are media constructs more than real sociology, with very fuzzy definitions Gen X (1965-81), Millennials are 1982-2004. We're used to hearing about Boomers (77 million people) and Millennials (~83 million people for a rough 20 year cohort) as big generations. Gen X (65 million) is considered small. But the arbitrary 16 year window for Gen X is smaller. Normalized per year Boomers are 4.05 people born / year, Gen X 4.06, and Millenials 4.15.

The point is that these are arbitrary definitions driven by media and culture rather than science. So it's not clear to me why they have such a driving power in political and economic discourse ... </end rant>

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Re: Social Security for Millennials

Post by alex_686 » Tue Apr 04, 2017 8:29 am

corysold wrote:I agree the number is too small to really make any fundamental changes to your planning.
I cam to the same conclusion but in a very different fashion.

Everybody needs to deal with uncertainty when dealing with a time horizon of more than 30 years.

You have underfunded Social Security.

Then SS is based on the underlying income of middle class workers, both for the level and the viability of SS. Plus you have to figure out what the long term returns will be for your portfolio. Then the volatility. The higher the volatility the lower the geometric growth. Personally, I think the above factors are more important than the underfunded SS.

I would count SS towards retirement. I would put wide error bands around the finial values, but around 1% not the 3% that the OP mentioned. We are projecting out 30 years. A little equity should (hopefully) grow very nicely during that time period.

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Re: Social Security for Millennials

Post by CppCoder » Tue Apr 04, 2017 8:30 am

I don't worry about it or plan for it. The maximum benefit now is something on the order of $32k per year, so 79% of that is on order of $25k per year. When the annual maximum social security benefit is on the order of your monthly take home pay, potential social security income becomes a round off error in your planning.

All retirement planning books indicate that you need something to do in retirement. My goal is to have entirely too much money and then spend my retirement trying to figure out what to do with it. If I die before I have a solution, I guess my kids will inherit my "problem." :D

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Re: Social Security for Millennials

Post by techrules » Tue Apr 04, 2017 8:37 am

My age group has been defined as both GenX on some articles and Millenial in others, at some point I may have to start considering the impact of having SS payments, but for now I am going to continue assuming it to be 0, which brings me to the question that when people recommend the 4% SWR, is that including SS payments?

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Re: Social Security for Millennials

Post by Grt2bOutdoors » Tue Apr 04, 2017 9:09 am

AnonJohn wrote:In light Mike's comment I feel obliged to point out that "Gen X" will be the first people hit by the current projected shortfall in Social Security. Do we get our own thread? :) According to a 2014 Pew Survey Gen X'rs are significantly more pessimistic about retirement than either Millennials or Boomers.

While I'm here, a minor rant. The Census only defines the Baby Boom Generation (1946-64).That had specific, post-war characteristics. The others are media constructs more than real sociology, with very fuzzy definitions Gen X (1965-81), Millennials are 1982-2004. We're used to hearing about Boomers (77 million people) and Millennials (~83 million people for a rough 20 year cohort) as big generations. Gen X (65 million) is considered small. But the arbitrary 16 year window for Gen X is smaller. Normalized per year Boomers are 4.05 people born / year, Gen X 4.06, and Millenials 4.15.

The point is that these are arbitrary definitions driven by media and culture rather than science. So it's not clear to me why they have such a driving power in political and economic discourse ... </end rant>
GenX here and count me among the more optimistic of the bunch. I take the annual statement and what it says and incorporate that in my plan. I believe the last one I looked at said benefits can be 75% of expected FRA?. I plan on receiving a bit more than that because I'm going to hold out for as long as I can until age 70 - so 1.24% should equal the original FRA amount that should have been there all else equal. That, and save while the sun is shining, make hay while you can, tomorrow is promised to no one - and I am being optimistic! :)
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Re: Social Security for Millennials

Post by J0NATHAN » Tue Apr 04, 2017 9:17 am

30-40 years out for me; I am shooting to have my retirement 100% funded. Any SS benefit would just be extra spending power. This far out, I actually have more difficulty anticipating savings rates 5,10,10+ years out because of salary changes (new job and promotion, raises, getting further education, etc.) There is a significantly wide margin from what my savings rate COULD be in the future.
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Re: Social Security for Millennials

Post by CyclingDuo » Tue Apr 04, 2017 9:18 am

Rainmaker41 wrote:
Fellow Millennials:

How do you plan to compensate for this 21% shortfall in Social Security retirement benefits as dictated by current law?

Say that Social Security replaces 40% of pre-retirement income for the typical family.

In other words, millennial Bogleheads cannot use the 15% rule of thumb, but must add ~ 3% to their savings rate in order to compensate. If we state that we believe the 15% rule of thumb is applicable to us, we are, by definition albeit indirectly, being ‘political’, because we would be strongly implying that there will be a change to current law. Absent such a concluded change in law, we must therefore talk on this forum not of the ‘15% rule of thumb’, but rather the ‘18% rule of thumb’, when referring to Millennials’ retirement planning and general savings rate guidelines.

Personally, I would like to aim for 100% of pre-retirement income in retirement rather than 85%; I won’t have a mortgage, but I might have higher healthcare costs, want to travel more, etc. So, I should aim for a minimum savings rate of 18% + (15/3)% = 23%. I’ll try for more, of course, but I don’t have a crystal ball that tells me how my career and family situation might pan out.

Are any other Millennials here using 18% rather than 15% as their baseline 'replace 85% of income including Social Security' target for these reasons?
I wouldn't confine the discussion in making plans just to Millennials.

We started investing in the late 1980's as tail enders of the Boomer generation. Everything we read as well as everything that was told to us by our then IDS "Advisor", and by our CPA, as well as more "advice" along the way during the 1990's was to make plans investment-wise in case of future changes to tax laws and Social Security. In other words, chit-chat fears regarding SS has been going on now for the full 30 years we've been investing and planning. So it's nothing new.

What does one do? What can one do? What did we do?

Develop your various "buckets" via 401k (403b in our case), IRA's, HSA (if your plan qualifies), taxable investments, and maybe even more tax deferred investment options. As one's income increases through the years, raise the 15% bar as you can along the way.

There are a lot of good recent discussions here on the BH forums with regard to the various types of annuities. With the savings and investments over one's career (be they Millennial, Gen X, or Boomer), the option to purchase a stream of income in retirement that could replace what one fears will be lost in SS, or to supplement the SS one does get, etc... will be available if you start to plan now and save accordingly.

Our current plans are to delay the SS until age 70 1/2, and even then - the amount predicted at this point based on our latest statements would be a grand total of $4750 per month pre-tax. We've upped our income contributions last year and this year to 25%+ which we hope to continue for the next decade to dozen years as that retirement age approaches (and we finally get to reach the empty nester la-la land later this Summer). Other options to offset any of that SS being reduced or lost include delaying retirement an extra year or two to boost pension a bit more (and or working part-time for a few years beyond that if need be) while we continue to contribute more into retirement accounts. We also are looking at the option of staggering several investment vehicles (bond ladders, dividends, annuities, etc...) if required/needed once the time arrives and we are able to assess our own situation as well as SS at that time. A lot could, and most likely will happen between now and then - but one must plan for all scenarios.

In other words, not a one solution fix, but a combination of choices that will work together to solve a problem if a problem exists. Is that actionable today? Yes. Investing, saving and developing your "buckets" within your overall nest egg to give you options in retirement is the key.

Our two young Millennial children are just beginning their careers (age 24 and soon to be 22). They both have been able to start last year, and this year with their first full contribution to IRA's which puts them a good 5 to 7 years ahead of us when we were that age. We are spending a lot of time with them on cash flow principles so they can take advantage of early investing to capitalize on the time factor for their benefit, as the issue you raise is indeed important and one must plan now for the unknown 30+ years from now.
Last edited by CyclingDuo on Tue Apr 04, 2017 9:23 am, edited 1 time in total.
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randomguy
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Re: Social Security for Millennials

Post by randomguy » Tue Apr 04, 2017 9:22 am

techrules wrote:My age group has been defined as both GenX on some articles and Millenial in others, at some point I may have to start considering the impact of having SS payments, but for now I am going to continue assuming it to be 0, which brings me to the question that when people recommend the 4% SWR, is that including SS payments?
4% is for the portfolio. You add SS and pensions onto that.

It should be pointed out that 79% is for one moment in time. Some of the studies I have seen sugges that the number rises back up to about 90% as the boomers die off over the next 15 years. But there are all sorts of various guesses and assumptions in any of these models. How things will play out is hard to say.


I think to some extent the OP is a bit off. Saving 15% gives you plenty of money with or without SS. Imagine
100k/yr, save 15%, make 5% real for 40 years.
That is 2 million dollars. That is enough to replace 100k of income when you are saving 15k of it and paying 7% or so in payroll taxes. If you get 24k of SS or 19k is just icing on the cake. The effects of hitting a bad 40 years (say 4% real) or a good one (7%) are going to matter a lot more than if you save 15% or 18%.

Now in the real world nobody saves (or has a flat income like that). People save more at certain times (pre kids, post kids, post paid off house) and less at others. Some will save over 30 years. Others over 45. Things like that are tough to model. 15% is just a nice round number that gets you close enough. Trying to look for added precision isn't very worthwhile. It is a number that gets you in the ballpark and you can make adjustments along the way to match your reality.

The other thing to remember is that 40% is for an typical person. Unless you are that person, you should be adjusting the rules to fit your situation. Generally higher income people replace less money from SS while lower income people get more.

Rupert
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Re: Social Security for Millennials

Post by Rupert » Tue Apr 04, 2017 9:30 am

I have a question that I hope is demographic and not political: I'm in Generation X, which is a relatively small generation sandwiched between two huge generations (Baby Boomers and Millennials). If Social Security survives the Baby Boomers, won't it be in pretty good shape for Generation X (because there will be many more people paying into the system than drawing on it)?

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Re: Social Security for Millennials

Post by fantasytensai » Tue Apr 04, 2017 9:32 am

I think Bogleheads is the wrong place to ask this question. Millennials on Bogleheads will tend to be good planners/savers and will have enough to live off by retirement, making any SS "gravy". However, I imagine a vast majority of millennials will be depending on SS as a primary source of income in retirement.

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willthrill81
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Re: Social Security for Millennials

Post by willthrill81 » Tue Apr 04, 2017 9:51 am

While I believe that it's very likely that I'll receive something from SS in 32 years, when I reach full SS retirement age, I do not account for it at all for two reasons.

1. IMHO, most likely, the maximum (in today's dollars) that I could expect to receive in SS would be around $25k per year. Even at today's low bond rates, I could purchase a SPIA at age 67 that would pay $25k per year for around $430k. This is well within the 'margin of error' in my projections of my current financial plans anyway (i.e. I don't know what return I'll actually get), so it makes little sense to be concerned about whatever I receive from SS.
2. I plan to become financially independent around 12 years before I reach full SS retirement age anyway and would have to account for that 12 year income gap in my plans. Even if I did take SS into account, it would make little difference in my needed portfolio at my desired FI age.
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Re: Social Security for Millennials

Post by dad2000 » Tue Apr 04, 2017 9:53 am

Rupert wrote:I have a question that I hope is demographic and not political: I'm in Generation X, which is a relatively small generation sandwiched between two huge generations (Baby Boomers and Millennials). If Social Security survives the Baby Boomers, won't it be in pretty good shape for Generation X (because there will be many more people paying into the system than drawing on it)?
I'm an old GenXer (51), and plan on collecting at age 70 though will retire well before that. The projections don't appear to indicate a healthy fund for SS for my retirement.

SS is a guaranteed inflation adjusted lifetime annuity. I don't see any possible shortfall as being insignificant at all, as it will require me to work longer since I don't know what might happen.

I'm assuming that I'll only get about 75% of what the plan currently pays. I also have a plan to diversify my buckets (taxable, Roth, traditional IRA) in case changes to taxation or means testing come in to play.

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Re: Social Security for Millennials

Post by Grt2bOutdoors » Tue Apr 04, 2017 9:59 am

Rupert wrote:I have a question that I hope is demographic and not political: I'm in Generation X, which is a relatively small generation sandwiched between two huge generations (Baby Boomers and Millennials). If Social Security survives the Baby Boomers, won't it be in pretty good shape for Generation X (because there will be many more people paying into the system than drawing on it)?
+1 Exactly. But just in case, I will go with the trustees report and take them at their word.
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Re: Social Security for Millennials

Post by CoAndy » Tue Apr 04, 2017 10:07 am

I have always planned on receiving exactly half of what my SS statement says I should get. If it ends up being a higher amount, that is just gravy.

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dm200
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Re: Social Security for Millennials

Post by dm200 » Tue Apr 04, 2017 10:12 am

Seems to me that for such younger folks, there are two vastly different projections.

1. Based on current law and implementing regulations, they will get exactly what is projected.

2. Based on the cited projections, without changes, there will be an insufficient amount of money to pay #1

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BrandonBogle
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Re: Social Security for Millennials

Post by BrandonBogle » Tue Apr 04, 2017 10:13 am

I take a two-tier/goalpost approach to my retirement planning.

First, I base everything on expenses, not income, using my current expenses with appropriate adjustments to project an estimated set of expenses in retirement. I then calculate my two tiers or goalposts.
  1. 401k + IRA + taxable at 3% Withdrawal Rate to cover a base level of living
  2. 401k + IRA + taxable + pension(s) + Social Security at 4% Withdrawal Rate to cover my desired lifestyle
(1) does NOT mean living in a cardboard box eating alpo, but means living in a house that readily meets my needs w/o room for guests, parties, extravagances, an economy car (or older premium vehicle), ample good food I cook myself, occasional regional trips (that can be cut back further as needed)

(2) means living where I can host a party and have friends/family visit for a week or two easily, going out as I desire, megatrips like I had last year and coming this year (visiting Iceland for a week, Paris for a week, London for a week, etc.), and having any reasonable car I desire (like my current one)

Now, the 3% for (1) is a hard requirement while the 4% for (2) is flexible. As such, I use current projections for Social Security and my pension to reduce my needed spending that must be funded by my 401k, IRAs, and taxable accounts. I currently use my estimated benefits using the SSA's calculator divided in half (so I can account for retiring early and thus, have a reduced earnings record + potential changes to Social Security), but would likely use the 79% or other published estimation when I get closer to pulling the trigger. Given the differences in spending between (1) and (2), I have plenty of leeway to cut back and manage my retirement spending if Social Security benefits change or I have some unexpected/life-changing emergency (debilitating disease, skyrocketing health insurance costs, etc.)

TL;DR - I basically count 50% of Social Security as estimated today since I plan to retire early and plan for flexibility in retirement if I'm off in my planning.

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Rainmaker41
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Re: Social Security for Millennials

Post by Rainmaker41 » Tue Apr 04, 2017 10:15 am

randomguy wrote:I think to some extent the OP is a bit off. Saving 15% gives you plenty of money with or without SS. Imagine
100k/yr, save 15%, make 5% real for 40 years. That is 2 million dollars. That is enough to replace 100k of income when you are saving 15k of it and paying 7% or so in payroll taxes. If you get 24k of SS or 19k is just icing on the cake. The effects of hitting a bad 40 years (say 4% real) or a good one (7%) are going to matter a lot more than if you save 15% or 18%.
Oh I fully agree. I only use 2% real return as my projection for planning to have the bare minimum necessary. The goal is to save enough to have food, shelter, health care, and go out to Denny's once a month even under that pessimistic real return scenario.

If returns are higher, then we can reassess every decade whether we want to reduce our savings rate to still hit the 'Denny's once a month' number if returns fall again, or keep our savings rate as is to shoot for something nicer.

What can I say; I like pancakes and coffee.

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Re: Social Security for Millennials

Post by MI_bogle » Tue Apr 04, 2017 10:17 am

I'll paraphrase what I said in the other thread

For a 25-35 year planning horizon, there is so much uncertainty that I prefer to not count on SS benefits. Political uncertainty is the least of my concerns. I don't know my future earning record, so right off the bat there is a lot of uncertainty in my future benefit. I don't know my future expenses, so that is another layer of uncertainty. I don't know my future savings rate, or return on investments.

Given all the uncertainties, I am in the "plan for the worst, hope for the best" camp. I'm not getting overly precise with calculations right now as they are guaranteed to be wrong. Focusing on what I can control right now. Every few year's I'll review and refine my plan as new information comes up and my "model" gets better. If I save well and earn decent returns, and my SSA looks good, I'll retire early. If not, I'll keep working.

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Re: Social Security for Millennials

Post by saladdin » Tue Apr 04, 2017 10:18 am

likashing wrote:Personally, I plan for $0 social security since it is not something I can depend on. It will be icing on my retirement cake.

I have also once used social security's site to get a SS estimate, then entered 50% of it into personal capital just for fun.
Yet you can "depend" on investment returns to fuel retirement savings?

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pennstater2005
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Re: Social Security for Millennials

Post by pennstater2005 » Tue Apr 04, 2017 10:19 am

Am I a millennial? I'm 38.
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Re: Social Security for Millennials

Post by dsmil » Tue Apr 04, 2017 10:19 am

fantasytensai wrote:I think Bogleheads is the wrong place to ask this question. Millennials on Bogleheads will tend to be good planners/savers and will have enough to live off by retirement, making any SS "gravy". However, I imagine a vast majority of millennials will be depending on SS as a primary source of income in retirement.
Very good point. The average person probably does depend primarily on SS and will have to either adjust their spending levels, number of years working, or both, to take into account the decreases in benefits. Even aside from Bogleheads saving more, Bogleheads are also higher earners than the average so we will generally be relying on social security less.

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Re: Social Security for Millennials

Post by dsmil » Tue Apr 04, 2017 10:21 am

pennstater2005 wrote:Am I a millennial? I'm 38.
It seems like the most often cited range is people born from 1980-1996, but there are other ranges out there.

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willthrill81
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Re: Social Security for Millennials

Post by willthrill81 » Tue Apr 04, 2017 10:26 am

pennstater2005 wrote:Am I a millennial? I'm 38.
Millennials are equivalent to Generation Y, the old moniker for the same people. Usually, they are defined as those born between 1977 and 1994, so yes, you're a Millennial.
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Re: Social Security for Millennials

Post by downshiftme » Tue Apr 04, 2017 10:32 am

I'm not a millennial, but my approach to this question has been the same my entire working career, even when I was the age millennials are currently. I have very limited ability to influence the political solutions needed by Social Security, so I cannot count on it as a certainty. I hope it will be patched up enough to pay full benefits, or if not that it will pay some meaningful portion of the promised benefits. I hope it will not adopt some selective benefit plan that could reduce my benefits disproportionately. But given this level of uncertainty I cannot depend on it at any knowable level of benefits.

Which means I have set my retirement goals so I can make do, perhaps not as much income as I would like, even if SS pays zero. I use SS in planning only for income above my bare bones baseline, or for reinforcements in case my planning assumptions do not hold and I end up short in older age. This makes SS an important part of my plan for comfortable living, but not absolutely necessary for survival at my chosen level of lifestyle.

This overly cautious approach means that I am working longer than I would need to, if I felt confident in receiving full SS benefits as currently defined. Since I don't have confidence in this, I am going to keep working perhaps a few extra years to make sure I can reach my low end comfortable lifestyle even if there were no SS benefit available (or limited) by the time I claim.

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bligh
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Re: Social Security for Millennials

Post by bligh » Tue Apr 04, 2017 10:46 am

pennstater2005 wrote:Am I a millennial? I'm 38.
Techinically, you're considered a cusper.

https://en.wikipedia.org/wiki/Cusper

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