Social Security and Your Retirement
June 16, 2019 6:19 AM   Subscribe

For those of you who have some kind of retirement plan in place, how does Social Security fit into it? Or, if you are retired and drawing Social Security: How is it working out? Do you expect to make any changes in the upcoming years? (Yes, this is a rather US-centric question, I’m sorry).

There was a recent question here on AskMe from a couple who, after much hard work and self-discipline, have put all of their debt behind them, they’ve got a good incomes flowing in, and their future is looking bright. It made me happy.

In that thread, several people brought up the importance of saving for retirement. But only one contributor made a brief reference to Social Security. Thus this question.

I’m aware that Social Security is a touchy subject: I’d like to ask that people stay away from politics and recriminations and instead focus on plans, strategies, tools, resources, and other things that might be useful to people thinking about Social Security as a facet of their retirement. Practical tales of what works and what doesn’t work would be especially appreciated.
posted by doctor tough love to Work & Money (25 answers total) 11 users marked this as a favorite
As I'm still quite a ways off from retirement, my spreadsheet/graph has two columns - one with SS, one without. A good retirement plan should be updated every 6mos to a year, as your situation evolves (market fluctuations, income changes, just checking to see if you're on track), so it'll be easy to evaluate the political situation as you get closer and plan accordingly.

FWIW, if I had to guess, I'd say that in 20-30 years, there will still be SS, but the retirement age for full benefits will be raised.
posted by chrisamiller at 6:56 AM on June 16, 2019 [3 favorites]

I'm basically ignoring it - I'm 36 now, and my strategy has been to plan as though it isn't going to be around for me. If SS still exists when I'm at an age to collect it, I'll have a nice surprise.
posted by Ragged Richard at 7:23 AM on June 16, 2019 [15 favorites]

Fidelity Investments has a retirement planner that allows adjusting for retirement age, income sources, desired income, inclusion of social security and from what age, expected tax rate, etc. You can log in a guest but the usual caveats about their retention of your info should be kept in mind.

Be aware of spousal options, types of income that SS applies to, options of taking SS early vs taking it later, SSA itself here addresses some of this.

One practical item I've done was tried to minimize my expected reliance on Social Security. I moved retirement plans from my employer to myself whenever possible/I left the company. The company would offer to keep it but moving it to myself meant I could choose from the whole stock market rather than just the company selected plans.
posted by beaning at 7:28 AM on June 16, 2019 [1 favorite]

For me taking SS at 62 made sense since it would take me 15 years to recover the money I will get between then and 67. I would then be 82 or dead.
posted by Ferrari328 at 7:30 AM on June 16, 2019

I waited til 69 to start collecting SS. The increase of benefits per year of delay was pretty huge. Having one year of high earnings pumped up my SS benefit. It's working well for me. My bank account grows a little every month. The mortgage is paid, and not having to commute to work in a car is saving me a lot of money. I inherited some money from my parents, but I haven't had to use any of it.
posted by Kirth Gerson at 7:58 AM on June 16, 2019 [1 favorite]

I'm 40 and have a partner with a disability who likely will not ever again be able to work enough that saving for retirement is going to be realistic for him, so I'm doing my best to save for both of us. Social Security is not part of my savings plan. I keep an eye on that annual report I get, so I have some sense of what my Social Security payments will be if the program still exists in its current form at the age I'd be eligible for it. But I'm proceeding under the assumption that it won't be there and/or that I can't count on it being available at any particular age. If/when it is, it will be a bonus to allow a more comfort in my life, but I've never felt it was something I could count on having.
posted by Stacey at 8:27 AM on June 16, 2019 [2 favorites]

Social security is a big part of my retirement planning, because I'm a working class person who is not in a professional job. Without social security, I will never be able to retire. (I mean, really, I'm assuming that climate collapse and the end of antibiotics will kill me long before I'm 67, but whatever.)

My working assumption is that it will not be fully funded and that I will collect ~75% of what the social security website predicts.

How old are you? I think it's relatively likely that a Chilean plan will be put in place, where everyone not in the military and under a certain age will get some kind of government-run stock market investment thing that will return far less than social security. I'd say that if you're much under forty, you should assume lower than 75% returns but not literally nothing - assume perhaps 40 or 50 percent of what social security would provide, perhaps?

This is a worse-case scenario; if a left Democrat administration gets into power, I expect that Social Security will be fully funded through tax changes. But better to use the worst-case.
posted by Frowner at 8:37 AM on June 16, 2019 [4 favorites]

Social Security provides a great baseline income. For most people it won't allow them to maintain their current lifestyle, but it should be enough to provide for essentials.

Retirement savings supplement Social Security. They also effect the design of when to start drawing on Social Security. If you have savings, you might be able to retire at age 62, live off your savings, and not begin drawing on Social Security until you are 67. This will decrease your savings (and any future growth in your savings) but it will allow you to have the larger Social Security payments in perpetuity.
posted by Winnie the Proust at 8:44 AM on June 16, 2019 [1 favorite]

I'm doing a version of what both Ragged Richard & Stacey said, that is, I am ignoring SS in my retirement planning so that if it is still around when I am at an age to recieve it, it'll be a nice surprise.

Here's a super-simple version of our retirement plan:
1) I estimate the monthly income I think we'd need to have once we both stop working (using the 10 years of our spending data I currently have logged plus the expected payoff dates of our major loans) and call that "Income," then,

2) I make a guess how long we're both likely to live (using our family history and current health) and call that "Time" then,

3) I calculate the amount of money we'd need to have to not run out if we were withdrawing "Income" every month during "Time" (using the standard advice that a 4% annual withdrawal rate is a safe bet) and call that "The Big Pot of Freedom." Finally,

4) I calculate how much we need to save every month now to have the The Big Pot of Freedom by the time we want to retire (using a fairly conservative assumption of 4% annual growth in our investments).

CAVEAT: IF it looks like Social Security will still exist AND if we can save The Big Pot of Freedom before the age at which we are required to take Social Security distributions (currently 70 1/2), then we would adjust our spending upwards in those years.
posted by minervous at 8:55 AM on June 16, 2019 [1 favorite]

Get a Life: You Don’t Need a Million to Retire Well Is a book I found helpful for thinking about this. The author points out that the financial services industry, the people who tell you you’re not saving enough, benefits from your putting lots of money into retirement savings. So the projections of how much you need aren’t necessarily accurate. (I worked at a nonprofit that paid extremely low salaries, and they brought in a retirement advisor to talk to us. When she named a projected amount we’d “need” for retirement, the group burst into laughter because nobody was earning near that.)

I am 60 and assume social security will continue to exist in some form because no elected officials will have the guts to vote to eliminate it no matter how screwed up the economy gets. I didn’t start earning a decent income that enabled me to save for retirement until later in life, so I’m counting on social security as part of my planning. But I also know how to live like a poor person because I’ve had to do it, and I’m counting on that experience too.
posted by FencingGal at 9:04 AM on June 16, 2019 [4 favorites]

Ooops! In that last bit I confused the required distribution age for retirement accounts and the full Social Security retirement age, which is 67 for people me. If we save The Big Pot of Freedom before age 67, then we'd adjust our spending upwards.

Ask me if I think there is a chance in hell that'll happen.
posted by minervous at 9:04 AM on June 16, 2019

The last time I checked the projections, the first year where Social Security revenues (taxes, interest income) will be unable to pay for benefits is the exact year that I am eligible to retire. This point is often tendentiously called "Social Security going bankrupt" by people who are opponents of the program; what it is in reality, though, is a point at which either revenues must be increased, or benefits decreased. So. It is unclear how much I can expect to receive in benefits, and I am relying more on the pension fund I have being paying into for nearly 20 years, which, they tell me, is in good shape financially.
posted by thelonius at 9:09 AM on June 16, 2019

I was unclear. The projected amount the retirement advisor said we’d need was an annual income for retirement years. It was considerably more than any of us was making in annual salary.
posted by FencingGal at 9:14 AM on June 16, 2019

My suspicion is that at the point I hit retirement, that the ages to start drawing retirement will have risen and that the amount paid will be around 70% of what's currently estimated. I also bet the reduced payout for early retirement will be worse than it currently is.

I'm able to save a lot of money, so that's simply something that's factored into my savings plan, to the point I could survive entirely without it if I had to. But that's not an option for most people.

So I do what I can to support reforming/protecting social security by donating to progressive politicians and doing things like calling them and saying that people like me need to be paying more into the system (I'm just past the cutoff point of having all my income subject to it).

And I spend a fair amount of time helping people learn about financial planning so they can prepare for a shortfall as best they can. But exactly how to do that is person specific - you're probably close enough to drawing from SSI that you'll be fairly well protected from its decline. Though depending on the size of your personal savings, you should consider delaying starting it as long as possible.
posted by Candleman at 9:38 AM on June 16, 2019 [2 favorites]

The question can be answered from a few different perspectives. In terms of planning, given a certain Social Security system, you basically decide when to retire, and when to claim. Claiming can be complex; when you get close to retirement age it's worth reading about it (e.g., here or here.) You can get a sense of your expected SS benefit at mySocialSecurity.

As far as what to expect for changes in law: First, if no changes were made, then in about 15 years all benefits would be reduced by about 20 percent. Politically, that simply won't happen. There will be a combination of tax increases and benefit reductions (of, on average, less than 20 percent). The benefit reductions and probably the tax increases will be made in a progressive manner: Higher income workers will experience the largest tax increases and benefit reductions. It's definitely possible that the highest, say, quarter of beneficiaries will have a benefit of more than 20 percent, but I would bet that benefit reductions for the bottom half of the income distribution will be minimal, and for the lowest earners, benefits will almost certainly be increased. i would give less than 5 percent odds of any transition to individual accounts to replace any portion of traditional benefits in the next 20 years. This is my opinion, but - and you'll just have to trust this anonymous internet comment - it's a very well-informed opinion.

In sum, don't worry about Social Security. If you're a low-earner who's going to be highly dependent on it, nothing much will change. If you're a higher earner,changes will be moderate and you will have other sources of income. There are many other big sources of uncertainty in your retirement planning, such as the risk of having to retire earlier than you wish, for example because of layoffs or health issues, medical costs in retirement, for which you face both individual risk and future policy risk, and, if you're a higher earner, uncertainty about future income tax rates.
posted by Mr.Know-it-some at 9:43 AM on June 16, 2019 [9 favorites]

It is important to see SS as just a part of your retirement plan, as you said. The really lucky people have a pension, savings, SS, and Medicare. Pension to me means a set amount your employer pays and Savings includes things you saved like 401K (with employer match) and IRAs (Roth or regular). Other accounts like HSAs (pdf link) that can be kept into retirement are also savings, just more limited in what you can spend without penalty. Most people are missing at least one of those four when they retire. If you are, you have to think about how to work around that.

-Many savings plans with retirement advantages have a minimum required distribution that starts the year you turn 70 and 1/2. Roth IRAs don't have that.

-Company provided retiree health benefits will often require Medicare eligible people to use Medicare first and the company plan second. It is still nice to have a company option.

-I help retirees with their taxes and often see people surprised that their income can still be taxed. Often the culprit is a pension plan with zero Federal and State withholding plus a monthly SS check. When you first retire, have them keep back 10-20 percent for taxes unless SS is your sole source of income. If you have no tax liability, you will get it all back and can adjust your withholding down after a year or two.
posted by soelo at 11:04 AM on June 16, 2019 [1 favorite]

We have money saved for retirement but will be depending on SS also. If it goes bust we could get by barely but it would be difficult with very little wiggle room.
posted by RichardHenryYarbo at 2:21 PM on June 16, 2019

We are in our late thirties and are saving as if SS will not be available to us. If it is, that will be a nice surprise. We save aggressively (around 30% of our income) and will likely be able to retire early, but we are still assuming our entire retirement will be self-funded.
posted by peanut_mcgillicuty at 4:44 PM on June 16, 2019

Happy story - my MIL is an elderly retired widow is living on a mix of social security, a military widow's pension and their savings. She is living comfortably and is able to afford the care she needs.
posted by metahawk at 10:03 PM on June 16, 2019 [1 favorite]

Frankly, the even greater issue for the people I know is not Social Security per se but Medicare. I'm tempted to turn this into a long rant that doesn't address your question but instead I will just note that budgeting for health care is huge unknown to consider as well.
posted by metahawk at 10:03 PM on June 16, 2019 [1 favorite]

I'm 64. Little to add that hasn't already been said.

FIRECalc was designed to answer the big question: "With what you have today, and what it costs you to live, can you retire and maintain the same lifestyle?" It's the best projection tool I found. There is a learning curve, but it's worth it. By the way, 'FIRE' stands for Financial Independence Retire Early. For those who can retire early, a lot rides on having high quality projections. The calculator can be used by those retiring at any age.

Everyone knows your SS benefit increases with the age when you begin collecting benefits. SS has and publishes lifespan projections based on birth year and sex. I've met few who realized that if you die in the projected year, your total SS benefits will be the same regardless of what age you began collecting them. You have to outlive the projection to benefit from delaying taking benefits past when you could begin. (Neither of the last 2 sentences consider the effect of income taxes).
posted by Homer42 at 4:04 AM on June 17, 2019 [1 favorite]

My retirement planning, for a retirement date of six to eight years from now, includes about $25 K per year from SS and $35 K per year from various retirement accounts. This will not quite replace our current income, but I assume that we can lead lives that are comfortable enough.

I do not count on inheritance windfalls, although it is possible. I assume that our aging parents will need to use their savings to support themselves, including expensive assisted living arrangements when needed.

The future of Medicare is concerning, however. The bucket of money is leaking, and there is no assurance that the current levels of coverage will continue. Instead, I believe that out of pocket and coinsurance costs will rise. If so, this will make the equation harder to balance.
posted by Midnight Skulker at 8:53 AM on June 17, 2019

Response by poster: Thank you, everyone! Many interesting viewpoints - I guess it’s not really a surprise, but it has been interesting to note that Social Security means different things to different people depending on their age, profession, and so on.

For the sake of anyone reading this in the future: I’m 59yo, I took early retirement after ~35 years as a software engineer at a large corporation. When planning for retirement, I decided to ignore Social Security completely - if I one day benefit from it, great! But I felt safer not counting on it.

I’d heartily 2nd Homer42‘s recommendation of FIRECalc. On an Internet littered with all manner of flaky “retirement calculators”, FIRECalc is a unique and valuable resource.

Also, Homer42 wrote:
> I've met few who realized that if you die in the projected
> year, your total SS benefits will be the same regardless
> of what age you began collecting them.

Very interesting. I’ve never worked the math, but I find this very easy to believe. I have noticed that many articles on the ‘net seem to push the notion of holding off on taking Social Security to get a large monthly pay-out. Which is probably a good idea if I’m confident that I will live forever. I’ll need to re-examine the law once - if! - I reach age 62, but my current plan is to begin collecting Social Security as soon as possible. Just MHO, YMMV.

metahawk: to whatever small degree my opinion matters here, I’d love to read whatever you’d like to share re Medicare.
posted by doctor tough love at 9:40 AM on June 17, 2019 [1 favorite]

I have noticed that many articles on the ‘net seem to push the notion of holding off on taking Social Security to get a large monthly pay-out. Which is probably a good idea if I’m confident that I will live forever.

The main reason to delay claiming is not to get a large monthly payout. The reason is to minimize the risk of outliving your savings.

What we call life insurance is really death insurance: For someone who's supporting children, most typically, dying early is a financial risk because you won't be able to earn money to support them.

After retirement, you really do need "life" insurance, to protect against the risk of living too long. One way of doing this is to buy an annuity: You pay a fixed amount to an insurance company, and they pay you a monthly amount for the rest of your life.

Delaying Social Security claim is equivalent to buying an annuity, and it's a much better value than any annuity you could get from a private company. If, for example, you delay claim from 62 to 70, then you just have to live off of savings for 8 additional years, but then you get a higher benefit for the rest of your life. If you live unexpectedly long, you'll be better off. If you die early, you'll just leave less to your heirs. (And still, on average, for the average person, you'll leave more to your heirs by delaying claim.)

Do claim early if you would have difficulty covering your cost of living, or if you are ill and expect to die at a young age.
posted by Mr.Know-it-some at 10:20 AM on June 17, 2019

I research Social Security and related government programs for a living.

If you start drawing at 62 instead of your full retirement age, it lowers your Social Security retirement benefits by 27% per month in perpetuity. Those benefits don't magically increase once you hit the fabled FRA birthday.

In addition. Social Security was never designed to fully replace your monthly paycheck. Instead, they were designed intentionally to make up about 40% of your current paycheck. Knowing this, I'm trying to ensure my retirement savings make up 60%-70% of my overall expenditures as I near retirement age.

The best way to maximize your Social Security benefits if you MUST retire early for medical reasons it to apply for Social Security disability instead of retirement. This cannot be done once you've already applied for early retirement, by the way -- so apply for SSDI first, then if you're denied and must have the money to live on, THEN apply for early retirement.

That's because SSDI (if you're approved) pays an identical amount in benefits to what you'd receive in regular Social Security payments, then automatically converts into regular retirement checks upon reaching your FRA. Here's a detailed article about that, if you're interested in learning more.

The other hidden benefit of applying for SSDI instead of early retirement at 62 is that you'll qualify for Medicare coverage a full year earlier, since those beneficiaries get Medicare after 24 continuous months of receiving SSDI. Food for thought.
posted by Unicorn on the cob at 6:04 PM on June 17, 2019 [5 favorites]

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