Is SS factored into planning and saving for retirement?

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tomwood
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Is SS factored into planning and saving for retirement?

Post by tomwood »

what role does paycheck deductions for SS play, when the younger demographics are planning ahead for retirement?

some like to consult general guidelines to learn If they are on track for retirement or if they need to change their savings rate. has it always been understood that the retired person will have SS, and therefore, this amount saved by specific years was calculating the amount above and beyond SS? For the youth who might not have full SS, should additional calculations or different factors be considered?

Would SS count as a fixed income, similar to bonds, if it is factored in a total investment portfolio?
sycamore
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Re: Is SS factored into planning and saving for retirement?

Post by sycamore »

tomwood,

As a general rule, I would not assume that everyone pays into and therefore receives from Social Security.
https://www.investopedia.com/retirement ... -security/

What I do is use the Social Security calculator to estimate the benefits I'll receive at full retirement age (using reasonable assumptions for my income until then). Then I subtract that SS benefits from my expected annual expenses. What's leftover is residual living expenses. My portfolio needs to cover the residual living expenses.

I would not convert or count my SS benefits as fixed income or include it in my portfolio. Considering as a cash flow/income to pay for expenses is the easiest way to account for things and to understand what I need from own portfolio.

What are the pros and cons you see to treating SS as fixed income?
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Horton
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Re: Is SS factored into planning and saving for retirement?

Post by Horton »

sycamore wrote: Sat Jun 06, 2020 9:00 am
What I do is use the Social Security calculator to estimate the benefits I'll receive at full retirement age (using reasonable assumptions for my income until then). Then I subtract that SS benefits from my expected annual expenses. What's leftover is residual living expenses. My portfolio needs to cover the residual living expenses.
This is what I do too.
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Re: Is SS factored into planning and saving for retirement?

Post by Silk McCue »

When is comes to retirement planning for the young they should not consider SS at all in their planning and saving for retirement. They should live below their means and maximize their investing using various employer and personal account types available. SS will certainly change over the coming decades so assuming a certain amount of benefit in the future and changing their investing as a result today could be a very bad decision.

At ages 59/60 we only view SS as a floor of income and consider in that analysis the potential reduction in benefits a dozen or so years out due to underfunding.

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Re: Is SS factored into planning and saving for retirement?

Post by CyclingDuo »

tomwood wrote: Sat Jun 06, 2020 8:52 am what role does paycheck deductions for SS play, when the younger demographics are planning ahead for retirement?

some like to consult general guidelines to learn If they are on track for retirement or if they need to change their savings rate. has it always been understood that the retired person will have SS, and therefore, this amount saved by specific years was calculating the amount above and beyond SS? For the youth who might not have full SS, should additional calculations or different factors be considered?

Would SS count as a fixed income, similar to bonds, if it is factored in a total investment portfolio?
Good questions. Most retirement planning objectives include that one of your streams of income in retirement will be coming from Social Security. Other income streams would come from your risk portfolio/savings, pension, real estate income, royalties, etc... depending on your individual situation.

The caveat being political discussions regarding Social Security and speculation are not allowed on the BH forums, so we only discuss what is currently known regarding Social Security.

As an example, if we look at Fidelity's chart of saving multiples of income along your journey - their assumptions include you will take SS income and retire at your FRA (full retirement age) of 67, save 15% of your pre-tax income into your retirement plans along the journey and that you will have no pension income.

Image
https://www.fidelity.com/viewpoints/ret ... retirement.

It is just a starting point for consideration. Not everyone is going to fit the mold of saving 15% of their pre-tax income per year, working until age 67, and not having a pension. However, your savings for retirement should be at a bare minimum of 15% and most Bogleheads would probably argue for going above and beyond that percentage if and when you can by keeping expenses and costs low so that if the scenario of not working until 67, or the scenario of things changing between now and then come about - you are more prepared.

I would be a case in point as I was laid off from my career job at age 56 two years ago. I was fortunate to find enough replacement income to keep on track for the past two years and have set our financial house in order for a variety of scenarios going forward.

Guessing at your expenses in retirement at your current young ages is difficult, but there is plenty of data available that shows what the current age groups in retirement are spending. Most of us would simply say - in spite of your SS paycheck deductions, make sure you are saving 15-20% of your pre-tax income into your investment portfolio each and every year.

Benchmark Savings Rate and Types...

Image

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dbr
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Re: Is SS factored into planning and saving for retirement?

Post by dbr »

For retirement planning SS is a potential income stream. Retirement planning is an exercise in matching needed income to the possible sources of that income. In the case of SS, pensions, and annuities that match is direct. The SS payment is income. The savings and investment part involves how to make withdrawals from one's saved assets to provide the rest of one's income needs after SS, pensions, and annuities. One decision in there is whether or not and how much of one's assets one might want to convert to an annuity.

All of this is subject to uncertainties:

1. How much money one will want to spend in retirement.
2. How large will one's assets grow through savings and investment return.
3. How much of that one will be able to spend before it is gone.
4. What will be available from SS and other sources.
5. What will befall you in your personal career, marriage, health, and circumstances.

Everything is a successive approximation that must be refined as time goes on. Retirement saving and spending models are a helpful tool for compiling in one place the many financial factors and the uncertainty they all have.
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Re: Is SS factored into planning and saving for retirement?

Post by nisiprius »

Although John C. Bogle on occasion has recommended considering the present value of future Social Security benefits as part of the bond allocation, I thought and think this is just plain wrong. They are just completely different things. For example, in an emergency you can sell a bond fund, and thus consider it as a kind of "second tier" emergency fund, but you cannot raise money by selling off a chunk of your Social Security. (And a good thing, too).

Like others in this thread, I think by far the most straightforward way to approach this is to subtract Social Security benefits from the expenses that your investment income will need to meet. All "conversions" between money-as-a-lump-sum and money-as-an-income-stream are problematical, and we shouldn't do any more of them than we need to.

As to whether you can count on Social Security to be there, in an absolute sense you can't necessarily count on anything to be there--not stocks, not the almighty dollar, not even the Old Man of the Mountain. Social Security statements have always contained a notice for as long as I've been getting them. The numbers have varied slightly. A current Trustees' Report summary says
The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, will be able to pay scheduled benefits on a timely basis until 2034, the same as reported last year. At that time, the fund’s reserves will become depleted and continuing tax income will be sufficient to pay 76 percent of scheduled benefits.
Therefore, I think that as a reasonable planning number it is conservative to assume a benefit cut of maybe around 25% and maybe around 2035. Of course you can put your personal thoughts into the scale, but at least this is a number that doesn't require Congress to fix anything, nor does it anticipate the end of the retirement world as we know it.
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Horton
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Re: Is SS factored into planning and saving for retirement?

Post by Horton »

nisiprius wrote: Sat Jun 06, 2020 9:34 am Therefore, I think that as a reasonable planning number it is conservative to assume a benefit cut of maybe around 25% and maybe around 2035.
I do this too.
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Re: Is SS factored into planning and saving for retirement?

Post by dukeblue219 »

Silk McCue wrote: Sat Jun 06, 2020 9:06 am When is comes to retirement planning for the young they should not consider SS at all in their planning and saving for retirement. They should live below their means and maximize their investing using various employer and personal account types available. SS will certainly change over the coming decades so assuming a certain amount of benefit in the future and changing their investing as a result today could be a very bad decision.
Eh, Im 34 and definitely consider SS part of our retirement. It's one leg, along with fed pension and 403b/IRA/tsp savings we have.

Im not going to count on full benefits in order to eat, but hoping for 75% of what they claim is reasonable to me. Trying to make up the difference of having zero SS benefits would be too much cut into my current quality of life. Not going to eat rice and beans for every meal in my 30s just in case SS disappears in my 70s when I'm already maxing TSP and paying down a mortgage.
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Re: Is SS factored into planning and saving for retirement?

Post by LadyGeek »

I removed a post conjecturing on the future of Social Security (political support to keep it funded). Changes in Social Security require a change in legislation, which is a political process.

Speculation about future legislation is prohibited by forum policy, see Unacceptable Topics:
Politics and Religion

In order to avoid the inevitable frictions that arise from these topics, political or religious posts and comments are prohibited. The only exceptions to this rule are:
  • Common religious expressions such as sending your prayers to an ailing member.
  • Usage of factual and non-derogatory political labels when necessary to the discussion at hand.
  • Discussions about enacted laws or regulations that affect the individual investor. Note that discussions of proposed legislation are prohibited.
  • Proposed regulations that are directly related to investing may be discussed if and when they are published for public comments.
This forum is focused on investing that is directly actionable to personal investors. We don't hold debates on conjecture.

The whole point of the policy is to (1) eliminate contentious disagreements that result from these discussions and (2) keep investors from making bad decisions. Proposed legislation changes many times between the time it's introduced and signed into law.

(Planning can be discussed. Opinions of what "might happen" are off-topic.)
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Re: Is SS factored into planning and saving for retirement?

Post by KyleAAA »

For detailed analysis, I take the SS estimate on the website for full retirement age and halve it, since its based on earning your current income until full retirement age and I’ll quit working long, long before that. But I don’t see much value in detailed planning until you get within a decade of retirement. For portfolio and savings purposes early in your career, it’s easier just to assume it doesn’t exist to add a margin of safety.
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Re: Is SS factored into planning and saving for retirement?

Post by dbr »

LadyGeek wrote: Sat Jun 06, 2020 10:50 am
(Planning can be discussed. Opinions of what "might happen" are off-topic.)
That should mean we can discuss (plan) what to do IF something might happen independently of speculating what might happen in terms of politics and policy.

Just trying to be clear.
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Re: Is SS factored into planning and saving for retirement?

Post by EnjoyIt »

Silk McCue wrote: Sat Jun 06, 2020 9:06 am When is comes to retirement planning for the young they should not consider SS at all in their planning and saving for retirement. They should live below their means and maximize their investing using various employer and personal account types available. SS will certainly change over the coming decades so assuming a certain amount of benefit in the future and changing their investing as a result today could be a very bad decision.
....
+1
I think this is a perfect answer.

When young invest as if there is no SS. When getting closer to SS age I would and will definitely take it into account.

We are in our 40s and saved with the assumption there will be no SS. We do this because we plan to retire early and won't be collecting SS for well over a decade. For us SS will be a back stop to our retirement plan.
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Re: Is SS factored into planning and saving for retirement?

Post by dbr »

EnjoyIt wrote: Sat Jun 06, 2020 11:08 am
Silk McCue wrote: Sat Jun 06, 2020 9:06 am When is comes to retirement planning for the young they should not consider SS at all in their planning and saving for retirement. They should live below their means and maximize their investing using various employer and personal account types available. SS will certainly change over the coming decades so assuming a certain amount of benefit in the future and changing their investing as a result today could be a very bad decision.
....
+1
I think this is a perfect answer.

When young invest as if there is no SS. When getting closer to SS age I would and will definitely take it into account.

We are in our 40s and saved with the assumption there will be no SS. We do this because we plan to retire early and won't be collecting SS for well over a decade. For us SS will be a back stop to our retirement plan.
Indeed. But more than that a young person has no idea what they will even earn over the next three decades. That uncertainty dwarfs anything that has to do with Social Security. There are a bunch of other things that are even bigger than that.
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Re: Is SS factored into planning and saving for retirement?

Post by EnjoyIt »

dbr wrote: Sat Jun 06, 2020 11:15 am
EnjoyIt wrote: Sat Jun 06, 2020 11:08 am
Silk McCue wrote: Sat Jun 06, 2020 9:06 am When is comes to retirement planning for the young they should not consider SS at all in their planning and saving for retirement. They should live below their means and maximize their investing using various employer and personal account types available. SS will certainly change over the coming decades so assuming a certain amount of benefit in the future and changing their investing as a result today could be a very bad decision.
....
+1
I think this is a perfect answer.

When young invest as if there is no SS. When getting closer to SS age I would and will definitely take it into account.

We are in our 40s and saved with the assumption there will be no SS. We do this because we plan to retire early and won't be collecting SS for well over a decade. For us SS will be a back stop to our retirement plan.
Indeed. But more than that a young person has no idea what they will even earn over the next three decades. That uncertainty dwarfs anything that has to do with Social Security. There are a bunch of other things that are even bigger than that.
Yup, savings rate and tax efficiency is probably the most important factors to an early investor.
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Re: Is SS factored into planning and saving for retirement?

Post by warowits »

Silk McCue wrote: Sat Jun 06, 2020 9:06 am When is comes to retirement planning for the young they should not consider SS at all in their planning and saving for retirement.
This remains horrible retirement advice, akin to put it all in gold because fiat currency will fail, or plan for a 2% withdrawal rate, or 0% real returns for 30 years.

Figure out roughly what your benefit should be under current guidelines and then subtract 25%. Treat it as an income stream and figure out how much more you will need, and save accordingly.
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Re: Is SS factored into planning and saving for retirement?

Post by Leesbro63 »

Florida, for instance, is full of couples living on mainly Social Security. On the other hand, there are "FATFIRE" Bogleheads where another $30,000 to $60,000 won't make as much difference. I try to plan on retirement without factoring in SS, because I want to be sure I'm OK without it.
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Re: Is SS factored into planning and saving for retirement?

Post by Silk McCue »

warowits wrote: Sat Jun 06, 2020 11:24 am
Silk McCue wrote: Sat Jun 06, 2020 9:06 am When is comes to retirement planning for the young they should not consider SS at all in their planning and saving for retirement.
This remains horrible retirement advice, akin to put it all in gold because fiat currency will fail, or plan for a 2% withdrawal rate, or 0% real returns for 30 years.

Figure out roughly what your benefit should be under current guidelines and then subtract 25%. Treat it as an income stream and figure out how much more you will need, and save accordingly.
I have no idea how you could call my entire statement "horrible retirement advice". You take one sentence and ignore the rest. With the rest included it can in no way be considered horrible advice. There is no downside to the approach. Spending more and saving less because of what you THINK you will get from SS would be horrible advice. Also, I specifically addressed the young. Think 20s to mid 30s.

Let your advice stand on its own.
When is comes to retirement planning for the young they should not consider SS at all in their planning and saving for retirement. They should live below their means and maximize their investing using various employer and personal account types available. SS will certainly change over the coming decades so assuming a certain amount of benefit in the future and changing their investing as a result today could be a very bad decision.
Cheers
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Re: Is SS factored into planning and saving for retirement?

Post by EnjoyIt »

warowits wrote: Sat Jun 06, 2020 11:24 am
Silk McCue wrote: Sat Jun 06, 2020 9:06 am When is comes to retirement planning for the young they should not consider SS at all in their planning and saving for retirement.
This remains horrible retirement advice, akin to put it all in gold because fiat currency will fail, or plan for a 2% withdrawal rate, or 0% real returns for 30 years.

Figure out roughly what your benefit should be under current guidelines and then subtract 25%. Treat it as an income stream and figure out how much more you will need, and save accordingly.
I strongly disagree. Why should a 20 or 30 year old worry about SS? What actionable information does it provide. Anything can happen in the next 40-50 years and not with just SS, but one's income, ones ability to work, and other circumstances. I think it would be very poor planning expecting that one will work till 70 years old without any unemployment in between and then expect to collect full SS. The best advice anyone can give a young investor is to save a decent amount with a legal tax avoidance strategy and try to reach some financial security relatively early in one's career because anything can happen. Then, later on in your career as you get closer to SS one can start looking at potential SS benefits.
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Re: Is SS factored into planning and saving for retirement?

Post by firebirdparts »

tomwood wrote: Sat Jun 06, 2020 8:52 am what role does paycheck deductions for SS play, when the younger demographics are planning ahead for retirement?
I'm not young anymore, but when I was 20, I figured that I would save assuming that I wouldn't receive anything from SS. As it is, as I get closer I can see that it allows me to retire earlier. The taxation had no role in my plans when I was a young person. I'm not legalistic, though. Not my style.

Kinda surprised, honestly, that anybody anywhere (war-o-wits) was willing to speak up to condemn it. Username does not check out.
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Re: Is SS factored into planning and saving for retirement?

Post by tenkuky »

Silk McCue wrote: Sat Jun 06, 2020 11:34 am
warowits wrote: Sat Jun 06, 2020 11:24 am
Silk McCue wrote: Sat Jun 06, 2020 9:06 am When is comes to retirement planning for the young they should not consider SS at all in their planning and saving for retirement.
This remains horrible retirement advice, akin to put it all in gold because fiat currency will fail, or plan for a 2% withdrawal rate, or 0% real returns for 30 years.

Figure out roughly what your benefit should be under current guidelines and then subtract 25%. Treat it as an income stream and figure out how much more you will need, and save accordingly.
I have no idea how you could call my entire statement "horrible retirement advice". You take one sentence and ignore the rest. With the rest included it can in no way be considered horrible advice. There is no downside to the approach. Spending more and saving less because of what you THINK you will get from SS would be horrible advice. Also, I specifically addressed the young. Think 20s to mid 30s.

Let your advice stand on its own.
When is comes to retirement planning for the young they should not consider SS at all in their planning and saving for retirement. They should live below their means and maximize their investing using various employer and personal account types available. SS will certainly change over the coming decades so assuming a certain amount of benefit in the future and changing their investing as a result today could be a very bad decision.
Cheers
I'm with Silk on this one. Although not young, I also do not consider SS in my planning and will have a "happy surprise" when I claim. I'm strictly calculating my savings rate and trajectory as though it wasn't part of the equation when using calculators. Better safe than sorry for some who can wing higher savings rates.
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Re: Is SS factored into planning and saving for retirement?

Post by phatpodo »

I have never factored Social Security into my planning. I expect it to be there when I retire, but without knowing if benefits or full retirement age will change before I can claim it, I don't want to count on it in my planning. Whatever I get just reduces my withdrawals.
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Re: Is SS factored into planning and saving for retirement?

Post by tibbitts »

tomwood wrote: Sat Jun 06, 2020 8:52 am what role does paycheck deductions for SS play, when the younger demographics are planning ahead for retirement?

some like to consult general guidelines to learn If they are on track for retirement or if they need to change their savings rate. has it always been understood that the retired person will have SS, and therefore, this amount saved by specific years was calculating the amount above and beyond SS? For the youth who might not have full SS, should additional calculations or different factors be considered?

Would SS count as a fixed income, similar to bonds, if it is factored in a total investment portfolio?
Your redeuced benefit (staring in 2034 or whenever) is factored in as money your portfolio doesn't have to provide. If you count your current benefit estimate without the mandated reduction you're cheating.
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Re: Is SS factored into planning and saving for retirement?

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (retirement planning).
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Re: Is SS factored into planning and saving for retirement?

Post by JonnyB »

tibbitts wrote: Sat Jun 06, 2020 12:24 pm If you count your current benefit estimate without the mandated reduction you're cheating.
Cheating? Really? According to whose rules?
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Re: Is SS factored into planning and saving for retirement?

Post by CyclingDuo »

phatpodo wrote: Sat Jun 06, 2020 12:02 pmI have never factored Social Security into my planning. I expect it to be there when I retire, but without knowing if benefits or full retirement age will change before I can claim it, I don't want to count on it in my planning. Whatever I get just reduces my withdrawals.
Well, I guess that's one way to do it provided it does not lead to you oversaving and downgrading your lifestyle for the entirety of your working career (30-40 years).

One could do the same for a pension where they ignore the reality they are paying the mandatory contribution into the pension plan each month for decades, but planning on the pension not being there when they reach the age to claim it.

You could also plan on receiving such low returns in your investments for decades that the amount you contribute and save is much more crucial and important than any investment returns you may or may not receive.

At some point, all of this kind of planning might provide more icing on the cake than the cake needs.

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Re: Is SS factored into planning and saving for retirement?

Post by CyclingDuo »

tibbitts wrote: Sat Jun 06, 2020 12:24 pm
tomwood wrote: Sat Jun 06, 2020 8:52 am what role does paycheck deductions for SS play, when the younger demographics are planning ahead for retirement?

some like to consult general guidelines to learn If they are on track for retirement or if they need to change their savings rate. has it always been understood that the retired person will have SS, and therefore, this amount saved by specific years was calculating the amount above and beyond SS? For the youth who might not have full SS, should additional calculations or different factors be considered?

Would SS count as a fixed income, similar to bonds, if it is factored in a total investment portfolio?
Your redeuced benefit (staring in 2034 or whenever) is factored in as money your portfolio doesn't have to provide. If you count your current benefit estimate without the mandated reduction you're cheating.
If you use i-ORP, it automatically calculates the benefit reduction beginning in 2035, but using a 25% reduction rate at that time.

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Re: Is SS factored into planning and saving for retirement?

Post by JBTX »

tomwood wrote: Sat Jun 06, 2020 8:52 am what role does paycheck deductions for SS play, when the younger demographics are planning ahead for retirement?

some like to consult general guidelines to learn If they are on track for retirement or if they need to change their savings rate. has it always been understood that the retired person will have SS, and therefore, this amount saved by specific years was calculating the amount above and beyond SS? For the youth who might not have full SS, should additional calculations or different factors be considered?

Would SS count as a fixed income, similar to bonds, if it is factored in a total investment portfolio?
It is a difficult question, and a lot of the answer ventures into predicting political, economic and future legislative actions all of which are explicitly disallowed here. But I think it is safe to say this. Social security as structured faces solvency issues and will only pay out 70-75 cents on the promised dollar in the mid 2030s as of current official projections. Whether the law is changed to remedy that, and how that affects your future payout is absolutely impossible to predict.

If I were in your shoes, as a young investor, I would assume it will be there, because it is a very popular program for those at or near retirement, but I would assume my payout to be somewhere between 50-75% of what current SS calculators say. But ultimately I guess you have to be prepared for any scenario.
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Re: Is SS factored into planning and saving for retirement?

Post by Horton »

Once you factor in SS, you may ask yourself an interesting question: why am I even saving for retirement? :P

More realistically, some younger BHs with families (myself included) may realize they can enjoy more fruits of their labor now while their kids are young.
Last edited by Horton on Sat Jun 06, 2020 1:22 pm, edited 1 time in total.
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Re: Is SS factored into planning and saving for retirement?

Post by nolesrule »

I use AnyPIA to calculate the FRA benefit based on our current income record, and update it every year. I use that benefit to calculate the retirement cashflow needs to extrapolate the needed number to retire.
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Re: Is SS factored into planning and saving for retirement?

Post by remomnyc »

I didn't consider it when I started planning and saving. My retirement target was set to meet all my needs and wants without social security. I did calculate how much it would be when I approached FIRE to make sure I had passed both the first and second bend points. I also entered it into the retirement calculators to see if I had enough. Perhaps I could have stopped working earlier if I had included it, but now I have a bigger cushion to sleep well at night when volatility like this year happen.
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Re: Is SS factored into planning and saving for retirement?

Post by grok87 »

tibbitts wrote: Sat Jun 06, 2020 12:24 pm
tomwood wrote: Sat Jun 06, 2020 8:52 am what role does paycheck deductions for SS play, when the younger demographics are planning ahead for retirement?

some like to consult general guidelines to learn If they are on track for retirement or if they need to change their savings rate. has it always been understood that the retired person will have SS, and therefore, this amount saved by specific years was calculating the amount above and beyond SS? For the youth who might not have full SS, should additional calculations or different factors be considered?

Would SS count as a fixed income, similar to bonds, if it is factored in a total investment portfolio?
Your redeuced benefit (staring in 2034 or whenever) is factored in as money your portfolio doesn't have to provide. If you count your current benefit estimate without the mandated reduction you're cheating.
i'm slowly coming around to this view. currently i'm haircutting my social security by 12% when the full haircut (as stated in the latest social securities trustee report) will be 24% starting in 2034.
https://www.ssa.gov/OACT/TRSUM/index.html
wrote: The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, will be able to pay scheduled benefits on a timely basis until 2034, the same as reported last year. At that time, the fund’s reserves will become depleted and continuing tax income will be sufficient to pay 76 percent of scheduled benefits.
cheers,
grok
Last edited by grok87 on Sat Jun 06, 2020 1:48 pm, edited 1 time in total.
RIP Mr. Bogle.
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Ben Mathew
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Re: Is SS factored into planning and saving for retirement?

Post by Ben Mathew »

For the young investor, social security is likely to pay out a good amount, but the amount is uncertain. Since social security is fundamentally a pay as you go system, it's a pretty robust system. Money comes in from current workers, and is sent to current retirees. The risks to the funding are really at the margins, in terms of how they manage demographic change (ratio of current workers to current retirees). The core of the program is solid. There is close to zero chance that the program or something like it will be abandoned, because Americans rely on it heavily.

I would guess that 70% of current benefits is probably a reasonably conservative estimate. I would assume something like that, rather than zero. Of course, future income is uncertain too. So are tax rates and longevity and just about everything associated with financial planning. But, plan we must!
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warowits
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Re: Is SS factored into planning and saving for retirement?

Post by warowits »

Silk McCue wrote: Sat Jun 06, 2020 11:34 am
warowits wrote: Sat Jun 06, 2020 11:24 am
Silk McCue wrote: Sat Jun 06, 2020 9:06 am When is comes to retirement planning for the young they should not consider SS at all in their planning and saving for retirement.
This remains horrible retirement advice, akin to put it all in gold because fiat currency will fail, or plan for a 2% withdrawal rate, or 0% real returns for 30 years.

Figure out roughly what your benefit should be under current guidelines and then subtract 25%. Treat it as an income stream and figure out how much more you will need, and save accordingly.
I have no idea how you could call my entire statement "horrible retirement advice". You take one sentence and ignore the rest. With the rest included it can in no way be considered horrible advice. There is no downside to the approach. Spending more and saving less because of what you THINK you will get from SS would be horrible advice. Also, I specifically addressed the young. Think 20s to mid 30s.

Let your advice stand on its own.
When is comes to retirement planning for the young they should not consider SS at all in their planning and saving for retirement. They should live below their means and maximize their investing using various employer and personal account types available. SS will certainly change over the coming decades so assuming a certain amount of benefit in the future and changing their investing as a result today could be a very bad decision.
Cheers
An illustration then. Lets take a 28 year old who makes the median income in the US, about 31,000, and assume they will for the rest of their life, retiring at 67. Also assume they will need 80% of that in retirement (what retirement planners often tell them). They are just starting to think about retirement and need to know what to save, but they also are looking at buying a house, and may have a young child to provide for, so money is tight.

If they assume SS will provide about 75% what it currently does (what SS tells us it will), you get about $12,400.

So they will need $24,800 yearly in retirement.
SS provides $12,400.
Remaining $12,400 x 25 (4% withdrawal assumption). They need to have saved about $310,000 by retirement. They should be able to get there by saving around $180 a month.
My advice, you need to save at least $180 a month.

If you assume no SS.

So they will need $24,800 yearly in retirement.
SS provides $0.
Remaining $24,800 x 25 (4% withdrawal assumption). They need to have saved about $620,000 by retirement. They should be able to get there by saving around $360 a month.
Your advice, you need to save at least $360 a month.

Now obviously if a person followed your advice they would end up better off in retirement, as they would have saved much more. The problem is behavioral. I know people that age, and I have talked to them about retirement. When you tell them they have to save $180 a month for retirement or they are in big trouble latter on, they tell you they don't have that much left over. But at least they start thinking about what they can save. When you tell them they need to save $360 a month or they are in big trouble, they laugh in your face. Its literally more than all of their discretionary spending a month. It means they will never be able to save for a down payment, or afford a house, or retire even if they save all their money after the bills are paid. So instead of saving $360, they save nothing. Because you told them they can't count on SS at all, which even you don't believe, you have put the idea of retirement beyond their reach entirely, so they save nothing.

Of course if you make significantly more than the median person, SS becomes a smaller part of your retirement spending and it becomes much easier to save a larger percentage of your salary and still lead a comfortable life. So your advice may well be better than mine for a person in the top 10% of income. But for most people, making reasonable assumptions and not overly pessimistic ones gives them a realistic look at what is needed for retirement and prevents despair and 0% savings rates.
JonnyB
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Re: Is SS factored into planning and saving for retirement?

Post by JonnyB »

warowits wrote: Sat Jun 06, 2020 1:45 pm
If they assume SS will provide about 75% what it currently does (what SS tells us it will), you get about $12,400.

So they will need $24,800 yearly in retirement.
SS provides $12,400.
Remaining $12,400 x 25 (4% withdrawal assumption). They need to have saved about $310,000 by retirement. They should be able to get there by saving around $180 a month.
My advice, you need to save at least $180 a month.
You forgot to include the spouse's benefit. Worse case they receive 50% of the primary's benefit. If they have their own work history, they may receive more.
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warowits
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Re: Is SS factored into planning and saving for retirement?

Post by warowits »

JonnyB wrote: Sat Jun 06, 2020 2:21 pm
warowits wrote: Sat Jun 06, 2020 1:45 pm
If they assume SS will provide about 75% what it currently does (what SS tells us it will), you get about $12,400.

So they will need $24,800 yearly in retirement.
SS provides $12,400.
Remaining $12,400 x 25 (4% withdrawal assumption). They need to have saved about $310,000 by retirement. They should be able to get there by saving around $180 a month.
My advice, you need to save at least $180 a month.
You forgot to include the spouse's benefit. Worse case they receive 50% of the primary's benefit. If they have their own work history, they may receive more.
I was trying to keep it fairly generalized, so had not assumed a spouse. There are a million permutations, but the general point is pretending like many peoples largest source of income in retirement doesn't exist is bad advice most of the time.
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Re: Is SS factored into planning and saving for retirement?

Post by tibbitts »

JonnyB wrote: Sat Jun 06, 2020 1:00 pm
tibbitts wrote: Sat Jun 06, 2020 12:24 pm If you count your current benefit estimate without the mandated reduction you're cheating.
Cheating? Really? According to whose rules?
Boglehead forum rules. Try posting about any proposed changes to existing legislation and see what happens. And changes to existing legislation would be required to avoid any reduction in benefits in the early/mid 2030s. Now, most of us probably don't expect the changes will turn out to be a simple across-the-board cut, but I don't know anyone who doesn't believe there will be changes that will be adverse to some constituency. So assuming the reduction provided by current legislation is the most - actually only - reasonable course of action.

So yes, cheating.
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Re: Is SS factored into planning and saving for retirement?

Post by JonnyB »

tibbitts wrote: Sat Jun 06, 2020 2:48 pm
JonnyB wrote: Sat Jun 06, 2020 1:00 pm
tibbitts wrote: Sat Jun 06, 2020 12:24 pm If you count your current benefit estimate without the mandated reduction you're cheating.
Cheating? Really? According to whose rules?
Boglehead forum rules.
The forum has rules about certain discussions and that is fine. The forum discussion rules have absolutely nothing to do with my financial decisions or your financial decisions. How anyone counts their benefit estimate does not involve "cheating" by anyone's rules.
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Re: Is SS factored into planning and saving for retirement?

Post by tibbitts »

JonnyB wrote: Sat Jun 06, 2020 3:36 pm
tibbitts wrote: Sat Jun 06, 2020 2:48 pm
JonnyB wrote: Sat Jun 06, 2020 1:00 pm
tibbitts wrote: Sat Jun 06, 2020 12:24 pm If you count your current benefit estimate without the mandated reduction you're cheating.
Cheating? Really? According to whose rules?
Boglehead forum rules.
The forum has rules about certain discussions and that is fine. The forum discussion rules have absolutely nothing to do with my financial decisions or your financial decisions. How anyone counts their benefit estimate does not involve "cheating" by anyone's rules.
Okay not "cheating", how about "wildly and arbitrarily exaggerating future income expectations"?
Blender
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Re: Is SS factored into planning and saving for retirement?

Post by Blender »

I treat SS as gravy on my mash potatoes. I don't count on it in any calculations but if it's there when we're of age then it will be used for additional discretionary spending.
hoops777
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Re: Is SS factored into planning and saving for retirement?

Post by hoops777 »

SS security is not going away and those currently receiving it will not see reductions. There are simple fixes but I guess they cannot be talked about on this sacred forum.
K.I.S.S........so easy to say so difficult to do.
Silk McCue
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Re: Is SS factored into planning and saving for retirement?

Post by Silk McCue »

hoops777 wrote: Sat Jun 06, 2020 5:45 pm SS security is not going away and those currently receiving it will not see reductions. There are simple fixes but I guess they cannot be talked about on this sacred forum.
If you are unhappy with the site rule, how about private messaging a moderator. Complaining about the rules in a post is against the rules as well.

Cheers
JonnyB
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Re: Is SS factored into planning and saving for retirement?

Post by JonnyB »

tibbitts wrote: Sat Jun 06, 2020 4:43 pm
JonnyB wrote: Sat Jun 06, 2020 3:36 pm
tibbitts wrote: Sat Jun 06, 2020 2:48 pm
JonnyB wrote: Sat Jun 06, 2020 1:00 pm
tibbitts wrote: Sat Jun 06, 2020 12:24 pm If you count your current benefit estimate without the mandated reduction you're cheating.
Cheating? Really? According to whose rules?
Boglehead forum rules.
The forum has rules about certain discussions and that is fine. The forum discussion rules have absolutely nothing to do with my financial decisions or your financial decisions. How anyone counts their benefit estimate does not involve "cheating" by anyone's rules.
Okay not "cheating", how about "wildly and arbitrarily exaggerating future income expectations"?
That's your personal opinion and you are welcome to it. It is not cheating and and it is not the violation of any rule for someone to have a different opinion.
Jags4186
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Re: Is SS factored into planning and saving for retirement?

Post by Jags4186 »

I am more than 30 years away from FRA. I do not consider SS at all towards my savings. Once I get close, say within 5-10 years of my SS benefit Starting to pay, I’ll start to worry about how it affects my savings.
lstone19
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Re: Is SS factored into planning and saving for retirement?

Post by lstone19 »

It's your planning, therefore your decision. Nobody is going grade you and give you an "F" for doing it wrong.

The younger you are, the more your planning should be looking at a range of where you might end up. When doing so, it is reasonable to be looking at a best case of SS as currently paid to a worst case of no SS at all. You probably also want to be factoring in different earnings assumptions.
hoops777
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Re: Is SS factored into planning and saving for retirement?

Post by hoops777 »

Silk McCue wrote: Sat Jun 06, 2020 5:57 pm
hoops777 wrote: Sat Jun 06, 2020 5:45 pm SS security is not going away and those currently receiving it will not see reductions. There are simple fixes but I guess they cannot be talked about on this sacred forum.
If you are unhappy with the site rule, how about private messaging a moderator. Complaining about the rules in a post is against the rules as well.

Cheers
Last edited by hoops777 on Sat Jun 06, 2020 8:08 pm, edited 1 time in total.
K.I.S.S........so easy to say so difficult to do.
hoops777
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Re: Is SS factored into planning and saving for retirement?

Post by hoops777 »

hoops777 wrote: Sat Jun 06, 2020 8:02 pm
Silk McCue wrote: Sat Jun 06, 2020 5:57 pm
hoops777 wrote: Sat Jun 06, 2020 5:45 pm SS security is not going away and those currently receiving it will not see reductions. There are simple fixes but I guess they cannot be talked about on this sacred forum.
If you are unhappy with the site rule, how about private messaging a moderator. Complaining about the rules in a post is against the rules as well.

Cheers
It was my intention not to violate any rules which is why I said it cannot be talked about. I fully understand that you definitely live very strictly by the rules but you really did not need to point that out to me.Have a nice day.
K.I.S.S........so easy to say so difficult to do.
mnnice
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Re: Is SS factored into planning and saving for retirement?

Post by mnnice »

I think the other part is survivor and disability benefits. I feel comfortable (in part) without life insurance coverage because of social security survivors benefits. I don’t have either private or employer sponsored disability insurance even though I consider myself semi-retired I make sure I earn enough too keep Social Security disability coverage going along.
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Stef
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Re: Is SS factored into planning and saving for retirement?

Post by Stef »

As a 29yo I don't count it at all. I should have enough to retire in 25 years. If SS is still around after that it will be a nice insurance that will prevent the SWR from failing.
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Re: Is SS factored into planning and saving for retirement?

Post by MathIsMyWayr »

Silk McCue wrote: Sat Jun 06, 2020 9:06 am When is comes to retirement planning for the young they should not consider SS at all in their planning and saving for retirement. They should live below their means and maximize their investing using various employer and personal account types available. SS will certainly change over the coming decades so assuming a certain amount of benefit in the future and changing their investing as a result today could be a very bad decision.

At ages 59/60 we only view SS as a floor of income and consider in that analysis the potential reduction in benefits a dozen or so years out due to underfunding.

Cheers
Being conservative in a financial planning has a merit, but it comes at a cost. It is a matter of the benefit in the future and the sacrifice at present. You have to set the bar appropriately.
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