Are you including SS in your planning model? Are the benefits really that high?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
investingdad
Posts: 1314
Joined: Fri Mar 15, 2013 10:41 pm

Are you including SS in your planning model? Are the benefits really that high?

Post by investingdad » Sat Jun 09, 2018 7:40 am

I have not used social security in any retirement planing model since I began modeling back in my 20s. Just today I tried an SSA calculator to estimate my benefits. I told it I would stop earning at 54 and entered my yearly earnings up to this year. I'm 44.

The result was a monthly benefit of $1600 in today's dollars starting at 62.

First, can that possibly be correct? Am I really going to get 20k a year in benefits? My wife has higher earnings and we are the same age. 40k a year in benefits?

Like I said, I hadn't spent much time looking at SS and I never include it in my planing. Because, holy crap, if we really do get those types of benefits in 18 years it radically alters my model.

grok87
Posts: 7974
Joined: Tue Feb 27, 2007 9:00 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by grok87 » Sat Jun 09, 2018 7:49 am

investingdad wrote:
Sat Jun 09, 2018 7:40 am
I have not used social security in any retirement planing model since I began modeling back in my 20s. Just today I tried an SSA calculator to estimate my benefits. I told it I would stop earning at 54 and entered my yearly earnings up to this year. I'm 44.

The result was a monthly benefit of $1600 in today's dollars starting at 62.

First, can that possibly be correct? Am I really going to get 20k a year in benefits? My wife has higher earnings and we are the same age. 40k a year in benefits?

Like I said, I hadn't spent much time looking at SS and I never include it in my planing. Because, holy crap, if we really do get those types of benefits in 18 years it radically alters my model.
yes sounds right to me.

you might be interested in this thread: the 3-legged stool approach to retirement planning
viewtopic.php?f=10&t=245377
"...people always live for ever when there is any annuity to be paid them"- Jane Austen


User avatar
KlingKlang
Posts: 655
Joined: Wed Oct 16, 2013 3:26 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by KlingKlang » Sat Jun 09, 2018 8:03 am

investingdad wrote:
Sat Jun 09, 2018 7:40 am
First, can that possibly be correct? Am I really going to get 20k a year in benefits? My wife has higher earnings and we are the same age. 40k a year in benefits?

Like I said, I hadn't spent much time looking at SS and I never include it in my planning. Because, holy crap, if we really do get those types of benefits in 18 years it radically alters my model.
While that benefits estimate is currently correct, it is subject to being changed over the next 50 years of your projected lifespans. In other words, don't count your chickens before they hatch.

SGM
Posts: 2620
Joined: Wed Mar 23, 2011 4:46 am

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by SGM » Sat Jun 09, 2018 8:09 am

I did not consider SS in my planning until a few years before retirement. We will shortly be receiving about $60k per year and it will cover all necessary spending for quite a few years.

My Dad's SS and pension covered all of his expenses and then some up until his 90s. His home was long paid for and real estate taxes were lower for the elderly. Later he needed some additional income from investments, but not before having to pay for assisted living.

I do not speculate on what SS benefits will be available for younger folks.

Mike Scott
Posts: 823
Joined: Fri Jul 19, 2013 2:45 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by Mike Scott » Sat Jun 09, 2018 8:12 am

You don't know that ANYTHING is going to be the same in the future. In fact, you may not make it that long yourself. However, ignoring the SS estimates is leaving out information that is very relevant.

User avatar
GoldStar
Posts: 47
Joined: Wed May 23, 2018 10:59 am

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by GoldStar » Sat Jun 09, 2018 8:15 am

Sure you should. The best estimate in my opinion assumes all current laws and the best backtested returns stay in effect.
If folks have the mindset such that they don't count SS perhaps they should also assume 0 real return on all their investments since they want to be worse case predictors.

wrongfunds
Posts: 1684
Joined: Tue Dec 21, 2010 3:55 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by wrongfunds » Sat Jun 09, 2018 8:33 am

Wait until somebody pipes in and says "$40K won't pay for even one of our Viking River cruises!" "NO, SS benefits are NOT high at all when we are planning to have $400K income in retirement."

Doesn't everybody on this forum aspire to be in the 8-figure club? Once you are there, SS benefits indeed are drop in the bucket.

The Wizard
Posts: 11783
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by The Wizard » Sat Jun 09, 2018 8:35 am

I don't think I did ANY modelling of retirement income until somewhere in my early 50s. I just focused on increasing my accumulation back then.

But then prior to retirement at age 63, I put together a spreadsheet showing conservative retirement income estimates year by year, with SS starting at 70 and increased portfolio withdrawals for seven years prior.
Things are turning out good in my case...
Attempted new signature...

Nate79
Posts: 2564
Joined: Thu Aug 11, 2016 6:24 pm
Location: Portland, OR

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by Nate79 » Sat Jun 09, 2018 8:36 am

I would decrease the estimate to 70% of the value then it is more likely to be somewhat accurate.

The Wizard
Posts: 11783
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by The Wizard » Sat Jun 09, 2018 8:39 am

wrongfunds wrote:
Sat Jun 09, 2018 8:33 am
Wait until somebody pipes in and says "$40K won't pay for even one of our Viking River cruises!" "NO, SS benefits are NOT high at all when we are planning to have $400K income in retirement."

Doesn't everybody on this forum aspire to be in the 8-figure club? Once you are there, SS benefits indeed are drop in the bucket.
I may have ASPIRED to be in the 8-figure club ($10M+) but sadly, time ran out well before I got there.
In my case, $40k of annual SS income will comprise a nice chunk of my total retirement income...
Attempted new signature...

MnD
Posts: 3426
Joined: Mon Jan 14, 2008 12:41 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by MnD » Sat Jun 09, 2018 8:42 am

Yes I do along with my federal pension and other benefits, my paid off house and other factors besides the size of my individual investment portfolio. Serially discounting or ignoring non-portfolio sources of income and assets will lead to some very large divergences in planning from a reasonable reality. Things change, but I've noticed over the decades that unexpected positives and negatives tend to do a lot cancelling out and net-net, don't move the planning curve very much.

Given the numerous options for fully funding Social Security, all of which can be deployed in various combinations, assuming some cliff-edge cut to benefits in 2037 is simplistic and highly unlikely.

spammagnet
Posts: 881
Joined: Wed Apr 27, 2016 9:42 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by spammagnet » Sat Jun 09, 2018 9:30 am

mdroz888 wrote:
Sat Jun 09, 2018 7:52 am
CBS Chicago 2: New Study: Social Security Reserves Could Run Out By 2034
How is that new?

Ron
Posts: 6299
Joined: Fri Feb 23, 2007 7:46 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by Ron » Sat Jun 09, 2018 9:52 am

wrongfunds wrote:
Sat Jun 09, 2018 8:33 am
Wait until somebody pipes in and says "$40K won't pay for even one of our Viking River cruises!" "NO, SS benefits are NOT high at all when we are planning to have $400K income in retirement."
Actually, we're doing two Viking cruises this year (1-Ocean, 1-River) for much less than $40k total, which is more than covered by our current joint age 70 SS income of just over $70k/year. BTW, the maximum age-70 annual total SS benefit for a couple in 2018 is $88,752. I guess you could call my wife/me "slackers" :D ...

Not to get political, but SS will still be around in the future and adjustments will be made, just like the last major changes made in 1983: https://www.ssa.gov/history/1983amend.html

We've been here before...

- Ron
Last edited by Ron on Sat Jun 09, 2018 11:14 am, edited 1 time in total.

Small Law Survivor
Posts: 443
Joined: Tue Nov 17, 2015 5:36 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by Small Law Survivor » Sat Jun 09, 2018 10:05 am

I am 67. My wife is 18 months younger than me. According to my social security statement, our total benefit when I turn 70 (my benefit plus spousal benefit) will be just shy of $60,000/year. I do find this a bit difficult to believe, but this is what SS tells me. I retired at 65, and I'm trying to hold to the 4% rule of thumb and do Roth conversions each year until I'm 70. When SS kicks in (fingers crossed ...), it will reduce that withdrawal rate to under 3%.

If this benefit is reduced, it won't be until I'm in my early 80s, so hopefully by then it won't hurt too much.

So yes, I include this in my financial planning. It's a significant component.

runner540
Posts: 644
Joined: Sun Feb 26, 2017 5:43 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by runner540 » Sat Jun 09, 2018 10:11 am

I don't assume any SS but I am a little younger. Essentially, I know some things will change dramatically in the next 60 years, and I figure ignoring SS is a margin for error. (maybe Medicare premiums go way up for people with assets, or a VAT tax is added that reduces the value of Roth post tax, or food becomes much more expensive due to climate change, etc.)

Note - I don't want the thread to get locked in a discussion of whether these thimgs might happen, but just as examples of things that could really change the math negatively. Planning w/o SS is one way of adjusting for the unknown.

delamer
Posts: 4776
Joined: Tue Feb 08, 2011 6:13 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by delamer » Sat Jun 09, 2018 10:18 am

The $1600/month estimate sounds reasonable to me, especially if you’ve been a fairly high earner.

Presumably your retirement model allows for different options for rate of return, inflation, age of death, etc.

So add a variable for multiple options for Social Security — full benefit, zero benefit, 75% benefit, etc.

It is wrongheaded to assume that SS is going to disappear. It is a fundamental benefit that keeps millions of people — who have a higher voter turnout than any other demographic group — out of poverty. It would be political suicide to eliminate or severely cut it back.

jlawrence01
Posts: 1365
Joined: Mon Feb 25, 2013 1:34 am
Location: Southern AZ

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by jlawrence01 » Sat Jun 09, 2018 10:20 am

I have never included social security and pensions in my planning models. They could be around in eight years when I retire but they might not be.

I figure that if I can live off my savings (Taxable, IRAs, 401(k)s) in my retirement, and pension or Social security is just gravy.

Our social security benefits would cover about 75% of our current expenses which will be greatly reduced when we qualify for Medicare.

TravelforFun
Posts: 1296
Joined: Tue Dec 04, 2012 11:05 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by TravelforFun » Sat Jun 09, 2018 10:22 am

I completely ignored SS in my retirement planning when I was in my 40's, then started paying attention to it in my 50's. Now I'm 4 years from turning 70 and It turns out SS will cover approximately 40% of our expenses. Contributions to SS we've made from 45 years of working will start paying dividends soon.

TravelforFun

stevekozak2
Posts: 40
Joined: Sun Dec 25, 2016 12:38 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by stevekozak2 » Sat Jun 09, 2018 10:25 am

I dont include it in my planning because I think, at a minimum, I will be means-tested out by that point. If I do receive any benefits, well then I can increase my charitable giving!

User avatar
nisiprius
Advisory Board
Posts: 35878
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by nisiprius » Sat Jun 09, 2018 10:53 am

investingdad wrote:
Sat Jun 09, 2018 7:40 am
...I have not used social security in any retirement planing model since I began modeling back in my 20s. Just today I tried an SSA calculator to estimate my benefits. I told it I would stop earning at 54 and entered my yearly earnings up to this year. I'm 44.

The result was a monthly benefit of $1600 in today's dollars starting at 62.

First, can that possibly be correct? Am I really going to get 20k a year in benefits? My wife has higher earnings and we are the same age. 40k a year in benefits?...
Yes, that is very possible as a ballpark estimate, if you mean "I am going to get something like $20,000/year; a lot more than $5,000/year, a lot less than $50,000/year."

Anything twenty years out is uncertain and virtually all planning and forecasting tools need to be taken with a huge grain of salt.

In my opinion, there are two sensible ways to plan. One is just to take the SSA calculator's numbers as given. Another is to assume that even though it would take only small changes to adjust Social Security to preserve the current level of benefits, that Congress will not make those changes. Using the sorts of official numbers SSA used to put on the statements it mails out--there will be a cut on the order of something like 25%, 30% that will happen somewhere around 2030 or so.

Social Security is a very important. Middle-class wage-earners who have spent their working lives in good jobs can't live the retirement they've dreamed of on Social Security alone, but they can survive on it. You should include some estimate of it in your plans. If you want to be conservative, use whatever number you can find for "cuts if nothing is done," i.e. subtract 20% or 30% from the estimate.

(If you want to be pessimistic, by the way, the future prospects for Medicare are much more gloomy than Social Security. Social Security isn't really in trouble unless people want it to be. Medicare is much more problematic.)
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Austintatious
Posts: 627
Joined: Thu Sep 13, 2012 7:01 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by Austintatious » Sat Jun 09, 2018 11:04 am

Having read many posts re Social Security over my years on the forum, I've noticed a clearly fatalistic perspective expressed by many younger members that Social Security will not be there for them. So many seem to have settled for what they perceive as the inevitable failure of SS as an income stream they'll be able to rely on in retirement. I assume that's why some are choosing to not include Social Security in their planning, yet they include their pensions and other employer-based savings plans, and their other savings/investments. If those are the assumptions being made, they could be a very big mistake.

If I were asked to identify the widely relied on income stream most likely to disappear (In fact, it's already disappearing at warp speed.) I'd say it was employer-sponsored retirement plans, those pensions so many Americans have relied upon for decades. The likelihood of SS not being there is far lower than is the failure of one's pension, in my admittedly inexpert opinion.

And I'd go further and say that the likelihood of SS not being there for them is also lower than the ongoing likelihood of a catastrophic financial meltdown severely impacting one's retirement savings and income.

Note: last paragraph edited for clarity, I hope

dknightd
Posts: 451
Joined: Wed Mar 07, 2018 11:57 am

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by dknightd » Sat Jun 09, 2018 11:28 am

investingdad wrote:
Sat Jun 09, 2018 7:40 am

First, can that possibly be correct? Am I really going to get 20k a year in benefits? My wife has higher earnings and we are the same age. 40k a year in benefits?
Yep, most likely, pretty cool. huh ;)

User avatar
MP123
Posts: 658
Joined: Thu Feb 16, 2017 3:32 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by MP123 » Sat Jun 09, 2018 11:36 am

investingdad wrote:
Sat Jun 09, 2018 7:40 am

The result was a monthly benefit of $1600 in today's dollars starting at 62.
Yes, and remember that Social Security has an annual cost of living adjustment. So by the time you're 62 that benefit will likely be much higher and continue to increase as you age. Of course prices will be higher too but the built in COLA helps protect you from inflation.

Chris K Jones
Posts: 82
Joined: Sat Jan 20, 2018 6:54 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by Chris K Jones » Sat Jun 09, 2018 11:41 am

That sounds right and yes, I do include it in my projections. Glad you got some good news!

User avatar
FrugalInvestor
Posts: 4719
Joined: Fri Nov 07, 2008 12:20 am

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by FrugalInvestor » Sat Jun 09, 2018 11:54 am

My approach was always to do my retirement planning without Social Security. This was not because I didn't think it would exist for me but rather because I knew the risk of underestimating retirement income was much greater than the risk of overestimating it. I also knew that in trying to precisely plan the future I would very likely miss some things - things that the Social Security income could help me cover. Of course the extent to which this might be a good practice probably depends on the percentage of retirement income that your Social Security is likely to represent.

In business I always followed the "under promise and over deliver" principle - within reasonable limits and considering the audience of course. That's also what I did in my personal planning especially given that I retired quite early which made precision in the out years much more difficult.
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

dknightd
Posts: 451
Joined: Wed Mar 07, 2018 11:57 am

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by dknightd » Sat Jun 09, 2018 12:30 pm

FrugalInvestor wrote:
Sat Jun 09, 2018 11:54 am
My approach was always to do my retirement planning without Social Security. This was not because I didn't think it would exist for me but rather because I knew the risk of underestimating retirement income was much greater than the risk of overestimating it. I also knew that in trying to precisely plan the future I would very likely miss some things - things that the Social Security income could help me cover.

In business I always followed the "under promise and over deliver" principle - within reasonable limits and considering the audience of course. That's also what I did in my personal planning especially given that I retired quite early which made precision in the out years much more difficult.
I think this is probably good advice for some people. If you are very young, or very rich, it is safe to ignore SS. But for many of us it will make up a significant portion of our retirement income once we file for it. If you are 20 and plan to retire at 35, then sure, ignore it. If you are 55+ and plan to retire in 5-10 years ignoring it would be a mistake. Heck, if I ignored it I'd probably have to work till 70. If I plan for it I can probably retire at 62 (and delay SS till 70). If my wife claims at FRA, and I delay till 70, it will likely cover 50% of our expenses. That is too much to be ignored. Every bodies situation is different. . .

User avatar
FrugalInvestor
Posts: 4719
Joined: Fri Nov 07, 2008 12:20 am

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by FrugalInvestor » Sat Jun 09, 2018 12:39 pm

dknightd wrote:
Sat Jun 09, 2018 12:30 pm
FrugalInvestor wrote:
Sat Jun 09, 2018 11:54 am
My approach was always to do my retirement planning without Social Security. This was not because I didn't think it would exist for me but rather because I knew the risk of underestimating retirement income was much greater than the risk of overestimating it. I also knew that in trying to precisely plan the future I would very likely miss some things - things that the Social Security income could help me cover.

In business I always followed the "under promise and over deliver" principle - within reasonable limits and considering the audience of course. That's also what I did in my personal planning especially given that I retired quite early which made precision in the out years much more difficult.
I think this is probably good advice for some people. If you are very young, or very rich, it is safe to ignore SS. But for many of us it will make up a significant portion of our retirement income once we file for it. If you are 20 and plan to retire at 35, then sure, ignore it. If you are 55+ and plan to retire in 5-10 years ignoring it would be a mistake. Heck, if I ignored it I'd probably have to work till 70. If I plan for it I can probably retire at 62 (and delay SS till 70). If my wife claims at FRA, and I delay till 70, it will likely cover 50% of our expenses. That is too much to be ignored. Every bodies situation is different. . .
I agree. Apparently as you were typing your response I was editing mine to say that it may or may not be a good approach depending upon the percentage of your retirement income that SS is likely to represent (I beat you! :happy). It may still make sense to only include some portion of SS in your calculations to cover the possibility of reduction in SS or miscalculation of expenses - or just to allow yourself a bit of a treat.
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

adam1712
Posts: 319
Joined: Fri Jun 01, 2007 5:21 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by adam1712 » Sat Jun 09, 2018 1:01 pm

mdroz888 wrote:
Sat Jun 09, 2018 7:52 am
Don't forget to keep this in mind:

http://chicago.cbslocal.com/2018/06/07/ ... -out-2034/
For younger people, I think it makes sense to not assume full, current SS benefits but useful to remember there will likely be some benefits.

There's likely 3 possible changes:
1) Based on the article, if nothing is done, the current system could pay out 79% of current benefits once the reserves are depleted in 2034.

2) There could also be increased SS taxes so the payouts are close to the same as they are now.

3) There could be means testing based on your other retirement income or greater benefit reductions for previous higher earners. Harder to plan for but also means you have some insurance if your other investments and career don't go as well as you hope.

Lynette
Posts: 1701
Joined: Sun Jul 27, 2014 9:47 am

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by Lynette » Sat Jun 09, 2018 1:05 pm

Don't forget that you will be taxed on it and Medicare B and D premiums will be deducted as well. As I have pensions, SS and RMDs, I also have to pay additional Medicare (IRMAA) premiums. I have 25% deducted for taxes. This could be lower with the new tax rate. So according to my statement, nominally I am getting about $3,500 a month. After taxes, Medicare B and D premiums, it is about $2,300 a month.

User avatar
celia
Posts: 7837
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by celia » Sat Jun 09, 2018 1:16 pm

spammagnet wrote:
Sat Jun 09, 2018 9:30 am
mdroz888 wrote:
Sat Jun 09, 2018 7:52 am
CBS Chicago 2: New Study: Social Security Reserves Could Run Out By 2034
How is that new?
+1
It was supposed to run out by 2003.
Then it was supposed to run out in 2015.
The latest I heard is that it was going to run out in 2025.
So this is great news if we now know it is going to run out in 2034.
(My years may not be accurate but the point is the same.)

If you want to understand how the monthly benefit is calculated, print and manually put your numbers in this chart:
Your Retirement Benefit: How It Is Figured
This is updated each year as a new group of people turn 62. Enter your numbers as if you were currently age 62, ie, the last 8 years have wages of 0. The index factors change each year due to past inflation for each year. Don't go over the max that was taxed for SS in YOUR particular year (not what the chart says).
Last edited by celia on Sat Jun 09, 2018 1:30 pm, edited 2 times in total.

dknightd
Posts: 451
Joined: Wed Mar 07, 2018 11:57 am

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by dknightd » Sat Jun 09, 2018 1:18 pm

To me this is the big danger. Medical expenses might increase more than the COLA that SS provides.

User avatar
HomerJ
Posts: 11186
Joined: Fri Jun 06, 2008 12:50 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by HomerJ » Sat Jun 09, 2018 1:37 pm

investingdad wrote:
Sat Jun 09, 2018 7:40 am
I have not used social security in any retirement planing model since I began modeling back in my 20s. Just today I tried an SSA calculator to estimate my benefits. I told it I would stop earning at 54 and entered my yearly earnings up to this year. I'm 44.

The result was a monthly benefit of $1600 in today's dollars starting at 62.

First, can that possibly be correct? Am I really going to get 20k a year in benefits? My wife has higher earnings and we are the same age. 40k a year in benefits?

Like I said, I hadn't spent much time looking at SS and I never include it in my planing. Because, holy crap, if we really do get those types of benefits in 18 years it radically alters my model.
Yes, that's correct.

SS is a large part of my planning... Since I'm hoping to retire on $80k a year, $40k a year is HUGE.

However, to play it safer, I'm only counting on $20k a year from SS, and plan to generate at least $60k a year from investments ($1.5 million at 4%).

I fully expect to see the full $40k from SS; if we get it, it just means more trips with the grandkids.
The J stands for Jay

spammagnet
Posts: 881
Joined: Wed Apr 27, 2016 9:42 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by spammagnet » Sat Jun 09, 2018 1:48 pm

celia wrote:
Sat Jun 09, 2018 1:16 pm
It was supposed to run out by 2003.
Then it was supposed to run out in 2015.
The latest I heard is that it was going to run out in 2025.
So this is great news if we now know it is going to run out in 2034.
To the point of the OP, I'm including SS in my model with the expectation that the trust fund will run out when the trustees say it will and that my benefit will decrease by the stated amount. The only fact I know is that they published that information in their report.

It's inconceivable to me that my benefits won't start at the time and rate that SSA says it will. (I plan to start drawing at 70, in less than 10 years.) To ignore that would be silly. With respect to the date and amount of decrease, I assume the trustees have a few smart people working for them and they're capable of making educated estimates informed by a lot of data.

Intuition tells me that a political compromise will happen before that and I'll be able to revise my estimate upwards at that time. But that's speculation and, for now, I base my plans on facts as published. (Mod: it's not my intent to discuss future legislation. As noted, I'm not basing my plans on that.)

User avatar
celia
Posts: 7837
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by celia » Sat Jun 09, 2018 1:49 pm

wrongfunds wrote:
Sat Jun 09, 2018 8:33 am
Wait until somebody pipes in and says "$40K won't pay for even one of our Viking River cruises!" "NO, SS benefits are NOT high at all when we are planning to have $400K income in retirement."

Doesn't everybody on this forum aspire to be in the 8-figure club? Once you are there, SS benefits indeed are drop in the bucket.
No... SS was never intended to pay for your river cruises. It is meant as a safety net for those who never had a chance to accumulate assets (low income job throughout life or disabled). A good chunk of retirees live on that as their only income stream, though.

SOME people plan to spend more each year in retirement than when working, but that is not common at all. To be able to do that you had to be extreme savers during your working years (or be lucky and win the lottery or get an inheritance). Once you become accustomed to living below your means for 30 or 40 years, it is hard to suddenly ramp up your spending.

Besides that, many of your expenses fall during retirement. Your house is likely to be paid off. Your kids are paid off (their education is paid and they moved out). Your retirement savings are paid up. Because of all of these, we live on less than half of what our working income was.

User avatar
HueyLD
Posts: 5729
Joined: Mon Jan 14, 2008 10:30 am

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by HueyLD » Sat Jun 09, 2018 2:09 pm

I have never considered SS for retirement funding because the money may be substantially less due to fiscal challenges.

As a result, I worked hard, lived below my means and saved a good portion of my income for retirement.

User avatar
JamalJones
Posts: 88
Joined: Sat May 28, 2016 12:53 pm
Location: California

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by JamalJones » Sat Jun 09, 2018 2:14 pm

MnD wrote:
Sat Jun 09, 2018 8:42 am
Given the numerous options for fully funding Social Security, all of which can be deployed in various combinations, assuming some cliff-edge cut to benefits in 2037 is simplistic and highly unlikely.
Yes! And, people seem to forget who votes - in significantly higher percentages than the rest of the population: people age 60+. In 2034 or 2037 (or whenever) is that population simply going to say "Well, that's what happens. But no problem, I can take a 25% SS benefit cut. I'll just work 15 more years at the garden supply store. It's cool." NO! They'll massively pressure their Senators and Representatives until they fix it.

I mean, you read all the time - and people here post articles about it - where you see senior citizens who don't have enough money to retire and they plan to work until they die. But in nearly all those cases the article mentions some meager monthly Social Security payment. Imagine a 20-25% benefit cut or a complete elimination of benefits. How would people survive? How would society function?
TSP + Vanguard Roth IRA: 80% equities (C, S, I Funds and VTMGX, VEMAX) / 20% bonds (F and G Funds) | MOTBH!

tibbitts
Posts: 7608
Joined: Tue Feb 27, 2007 6:50 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by tibbitts » Sat Jun 09, 2018 3:07 pm

JamalJones wrote:
Sat Jun 09, 2018 2:14 pm
MnD wrote:
Sat Jun 09, 2018 8:42 am
Given the numerous options for fully funding Social Security, all of which can be deployed in various combinations, assuming some cliff-edge cut to benefits in 2037 is simplistic and highly unlikely.
Yes! And, people seem to forget who votes - in significantly higher percentages than the rest of the population: people age 60+. In 2034 or 2037 (or whenever) is that population simply going to say "Well, that's what happens. But no problem, I can take a 25% SS benefit cut. I'll just work 15 more years at the garden supply store. It's cool." NO! They'll massively pressure their Senators and Representatives until they fix it.

I mean, you read all the time - and people here post articles about it - where you see senior citizens who don't have enough money to retire and they plan to work until they die. But in nearly all those cases the article mentions some meager monthly Social Security payment. Imagine a 20-25% benefit cut or a complete elimination of benefits. How would people survive? How would society function?
We can't venture into politics, but the issue isn't people with little income other than social security, the issue is whether the problem for them will be solved by reducing benefits for the minority of people (and minority of voters) who have saved.

In any case I don't see that we have a choice other than to claim at 62, since most of us will have had to claim before we'll know how the shortfall will be resolved, so we have to assume little or no benefits after that time - and get everything we can get while we can get it.

My benefits would be $22k/yr if I work until 62 and take SS then, later dropping as a result of the required adjustments.

halfnine
Posts: 856
Joined: Tue Dec 21, 2010 1:48 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by halfnine » Sat Jun 09, 2018 3:14 pm

investingdad wrote:
Sat Jun 09, 2018 7:40 am
I have not used social security in any retirement planing model since I began modeling back in my 20s. Just today I tried an SSA calculator to estimate my benefits. I told it I would stop earning at 54 and entered my yearly earnings up to this year. I'm 44.

The result was a monthly benefit of $1600 in today's dollars starting at 62.

First, can that possibly be correct? Am I really going to get 20k a year in benefits? My wife has higher earnings and we are the same age. 40k a year in benefits?

Like I said, I hadn't spent much time looking at SS and I never include it in my planing. Because, holy crap, if we really do get those types of benefits in 18 years it radically alters my model.
I haven't worked since I was near 40. My benefits will be around 20K/yr in current real terms. My spouse should get about 10K/yr. So, yes, like others have indicated in is certainly possible.

As to how we include it in our planning. We won't let it account for more than 40% of our expenses. I am a big fan of diversifying concentration risk. As such I really don't want any income source whether equities, fixed income, property, or pensions providing more than 40% of expected expenses.

MnD
Posts: 3426
Joined: Mon Jan 14, 2008 12:41 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by MnD » Sat Jun 09, 2018 3:17 pm

The payroll tax and ceiling will be increased, the taxable portion will maybe be 100% instead of 85% for those above a certain income, for young people the retirement age will be very gradually increased a bit - those sorts of things. We aren't going to wake up on Jan 1, 2034 to SS eligibility means testing and/or a 21% benefit cut.

User avatar
galeno
Posts: 1166
Joined: Fri Dec 21, 2007 12:06 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by galeno » Sat Jun 09, 2018 3:37 pm

We are not USA-domiciles. But we will have a state pension from our country. The NPV of our government pensions is 11% of port. We could have taken our pensions at 60. We will take it at age 70. Under our new pension laws max pension payments will max out at age 70.

We are retired using the 4% rule. It's conservative if we add our pensions we leave 0.6% of portfolio as "savings".

The break even death point for taking our pensions at 60 vs 70 is 81. My wife's parents lived into their 70s. My parents lived into their 80s.
We will take the longevity bet.

Using firecalc (ER = 0.40%. 40/60 port. 35 yr term. SWR = 95% success)

No pensions our initial SWR = 3.5%.

Pension at 60 our initial SWR = 4.3%.

Pension at 70 our initial SWR = 4.6%.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 3.0%. TER = 0.4%. Port Yield = 2.0%. Term = 35 yr. FI Duration = 6.2 yr. Portfolio survival probability = 100%.

heyyou
Posts: 3007
Joined: Tue Feb 20, 2007 4:58 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by heyyou » Sat Jun 09, 2018 3:42 pm

I just wanted to save enough to retire early, and did, so maximum SS was too far away to matter.
Now I could buy a bright red convertible car to look like a silly geezer. Maybe the car is not necessary?

User avatar
Dendritic Tree
Posts: 122
Joined: Fri Dec 04, 2015 4:20 pm
Contact:

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by Dendritic Tree » Sat Jun 09, 2018 3:52 pm

Definitely not including it. We’re still in our 30s so anything could happen but it seems like there’s too much demographic and political risk over the next 30 years to include it as part of our strategy and assume that there won’t be collapse of the whole system, or more likely some sort of means test or something. If we wind up getting some SS benefits, we will just have to think of it as a “cherry on top” windfall.

Ron
Posts: 6299
Joined: Fri Feb 23, 2007 7:46 pm

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by Ron » Sat Jun 09, 2018 4:06 pm

heyyou wrote:
Sat Jun 09, 2018 3:42 pm
Now I could buy a bright red convertible car to look like a silly geezer. Maybe the car is not necessary?
I purchased my red convertible (Mustang GT) 16 years ago, before I started collecting SS and became a geezer.

Now I'm just a geezer collecting SS, sitting in my driveway with the top down, and yelling at the kids to get off my lawn :mrgreen:

- Ron

User avatar
cfs
Posts: 4104
Joined: Fri Feb 23, 2007 1:22 am
Location: ~ Mi Propio Camino ~

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by cfs » Sat Jun 09, 2018 4:18 pm

A lot of workers are retiring and Social Security is not going to be around for too long . . . (so said my father 56 years ago).
Good luck, y gracias por leer ~cfs~
~ Member of the Active Retired Force since 2014 ~

CurlyDave
Posts: 548
Joined: Thu Jul 28, 2016 11:37 am

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by CurlyDave » Sat Jun 09, 2018 5:27 pm

tibbitts wrote:
Sat Jun 09, 2018 3:07 pm
...In any case I don't see that we have a choice other than to claim at 62, since most of us will have had to claim before we'll know how the shortfall will be resolved, so we have to assume little or no benefits after that time - and get everything we can get while we can get it.

My benefits would be $22k/yr if I work until 62 and take SS then, later dropping as a result of the required adjustments.
+1

This is exactly the choice I made back in 2007 when i retired and started SS at 62.

I didn't spend down my portfolio waiting for an increased SS at 72, and I didn't invest the SS payments -- I spent the SS payments on living expenses instead of spending from my portfolio. (The practical difference is not just semantic, I kept the AA I had chosen years prior without any further thought or action.)

I have heard delaying SS described as "longevity insurance", I consider taking SS at the earliest possible date as "national fiscal challenge insurance". We know the challenge is coming, the SS Trustees say in 2034, but we don't know what the national response will be. My personal response is to insure against a bad (for me) outcome by keeping my portfolio as plump as possible and live on the government's money in early retirement. BTW, a nice plump portfolio is another form of longevity insurance.

basspond
Posts: 1008
Joined: Wed Nov 27, 2013 4:01 am

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by basspond » Sat Jun 09, 2018 7:00 pm

My early calculations on how much I needed did not include SS, which I will claim at 62. But now I am using it to look at maximizing my withdrawals and minimizing taxes.

RickBoglehead
Posts: 224
Joined: Wed Feb 14, 2018 9:10 am

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by RickBoglehead » Sat Jun 09, 2018 7:09 pm

Your annual social security statement, or online account, show your actual benefit. Waiting until 70 is much higher. We'll be getting $60k.

Not Law
Posts: 180
Joined: Sun Sep 14, 2014 8:05 am

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by Not Law » Sat Jun 09, 2018 7:33 pm

Benefits at 62 = $1800 ($21.6k/year), at 66 = $2400 ($28.8/yr), at 70 = $3150 ($37.8/yr). Spousal benefit at 66 = $1200 ($14.4/yr). "Break even" for all is <80. Odds that one spouse will reach 90 when both are 65 is about 25%. Odds that at least one will reach 80 are closer to 80%.

Waiting for benefits until age 70 allows for the surviving spouse (whose tax brackets are halved) to receive the maximum (COLA adjusted) benefit. Spending down retirement funds/Roth conversions from 62 to 70 will reduce RMDs and lower the chance that SS will be taxed.

Even if the benefit is reduced (I agree with those who think it is unlikely), the above observations are relevant to when one begins their SS. Even more so if the benefit reduction is a result of means testing.

AlohaJoe
Posts: 3315
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Are you including SS in your planning model? Are the benefits really that high?

Post by AlohaJoe » Sat Jun 09, 2018 7:40 pm

jlawrence01 wrote:
Sat Jun 09, 2018 10:20 am
I have never included social security and pensions in my planning models. They could be around in eight years when I retire but they might not be.

I figure that if I can live off my savings (Taxable, IRAs, 401(k)s) in my retirement, and pension or Social security is just gravy.

Our social security benefits would cover about 75% of our current expenses which will be greatly reduced when we qualify for Medicare.
You never include Social Security because it might not be around but you have an ironclad reliance on Medicare...... :?

Medicare is a vastly bigger financial problem than Social Security. The 2018 report from the Medicare trustees said that the Medicare trust fund runs out in 2026 -- and upthread people were worried about Social Security in 2034. So Medicare will run out of money first. And Social Security costs will soon plateau while Medicare's costs are projected to increase for the next 25+ years.
The CBO expects total Social Security spending to leap up over the next decade but then settle at just over 6 percent of the GDP, at which point it will cease to be a major contributor to rising entitlement spending or growing debts. Social Security is thus a minor player in our long-term budget drama
Image

As the Medicare trustees themselves said in their 2018 report: "The financial projections in this report indicate a need for substantial steps to address Medicare’s remaining financial challenges."

Post Reply