Should I include social security in my retirement planning?

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Charon
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Re: Should I include social security in my retirement planning?

Post by Charon »

bobcat2 wrote: Thu Dec 02, 2021 11:31 am I think the 22% cut is the extreme position. For it to be worse than that the payroll tax would have to be cut. The reasonable forecast at this point IMO would be to assume no change in SS payouts. After all, there are several bills in Congress now to increase future Social Security benefits.
+1

If Congress passes a bill, but doesn't at the same time raise the debt ceiling to cover the long-term projected costs of the bill, is the neutral assumption that the bill won't take effect? No.

Plan based on currently stated benefits formulae. Include in your range of possibilities both reduction and increase by moderate amounts. Judge by past data, just like we do for investments. Yes, the age for full retirement has been raised, but we had a fair bit of heads up on that. (The least amount of notice was for those born in 1938, who had full retirement changed from 65 to 65 and 2 months with 20 years of notice. Everybody younger than they had a more notice. Those of us whose FRA was changed by two years got notified no later than age 23.)
Charon
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Re: Should I include social security in my retirement planning?

Post by Charon »

EnjoyIt wrote: Thu Dec 02, 2021 1:00 pm If my memory serves me right, you plan to retire early. Not sure what age that means, but if it is 50 for example, how do you account for SS in you plan today?
I'm not willthrill81, but I also hope to retire a bit early. I estimate my SS assuming zero earnings after a certain date, and run cFIREsim with a portfolio and SS kicking in later on down the road.

The stated VPW method is to used guaranteed investments (like I-bonds or a CD ladder) to bridge to Social Security in full. I probably won't go quite that far, but I do plan on a bit of a bond tent.
AnEngineer
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Re: Should I include social security in my retirement planning?

Post by AnEngineer »

nisiprius wrote: Thu Dec 02, 2021 1:04 pm
AnEngineer wrote: Thu Dec 02, 2021 11:31 am
JoeRetire wrote: Thu Dec 02, 2021 11:07 am Today, your social security benefits are guaranteed. If you want to make plans based on all future possible law changes, your plans will be useless.
I was just saying that the word "guaranteed" is inappropriate for something likely to change.
This is playing on the meanings of the polysemic word "guarantee." Relevant material from American Heritage Dictionary, "guarantee:"
1. Something that assures a particular outcome or condition: Lack of interest is a guarantee of failure.
2. a. A promise or assurance, especially one given in writing, that attests to the quality or durability of a product or service.
b. A pledge that something will be performed in a specified manner.
Social Security, or a bond, or a guarantee card in the product box, is a guarantee in meaning #2b.
...
If this is the definition of "guarantee" is use, then I'd say the original argument doesn't hold. For the following reason:
If you have a probability estimate for the pledge being kept you might use it. For example, I imagine that the market value of a BBB-rated bond is less than that of an AAA-rated bond with the same term and coupon.
I also wouldn't characterize the existence of a law today as a pledge that it will continue to exist that way, but maybe there's some part of the law which makes this promise of which I am not aware.
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Re: Should I include social security in my retirement planning?

Post by Chadnudj »

cbs2002 wrote: Thu Dec 02, 2021 7:15 am Yes, it is irrational not to. Never understood sites (such as Financial Samurai) that say to ignore it. As others have pointed out, it can easily be equivalent to $1M+ at a 4% WR for people who have worked a long professional career. I do think it's reasonable to expect that benefits will be reduced progressively at some point in the future but that's no reason to ignore a substantial source of revenue.

I think more important questions are how much you assume, and at which age you choose to include it. I just took a look at the SSA projections and it tells me that my "number" (which I assume is in 2021 dollars) depends on working at my current income level until I take SS benefits. That's not a realistic assumption.

What I need is a calculator that allows me to input my actual historical income, future income assumptions, and age at which I take benefits and get a number in 2021 dollars. Then I'd discount that by 20% or so.
Have you tried this one? I find it pretty intuitive, and it lets you include a spouse: https://ssa.tools/calculator.html
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JoeRetire
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Re: Should I include social security in my retirement planning?

Post by JoeRetire »

AnEngineer wrote: Thu Dec 02, 2021 12:34 pmWhich, in turn, was responding to your argument that because it's guaranteed, it would be foolish to ignore. It's not guaranteed, therefore that particular argument is irrelevant.
:oops:
Under current laws, it is indeed guaranteed.

If you want to play the "but laws can change" argument, then there's no need for further discussion, since under those conditions planning is irrelevant.

There are no guarantees that the sun will rise tomorrow. I'm planning on it. Your mileage may vary.
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MillennialFinance19
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Re: Should I include social security in my retirement planning?

Post by MillennialFinance19 »

EnjoyIt wrote: Thu Dec 02, 2021 1:03 pm
MillennialFinance19 wrote: Thu Dec 02, 2021 12:02 pm 34 year old here. I use my current social security estimate as it doesn’t account for inflation. By doing this, I assume that my estimate (Per SSA website) will be of higher fidelity the older I get.

Example - my estimate this year is $1900 a month at 62. After the 5.9% COLA gets put in, my estimate next year should be $2012. This is the number I’ll use going forward until I retire.
I think you may be mistaken (sorry if your not.) $2,012 is what you will get if you work till full retirement age (FRA.). That means you need to have uninterrupted work at your current income for over 30 years. Run what you have now using ssa.tools that website will tell you what you have today if you stop working now which is a more accurate representation.
I’m not mistaken and you are 100% correct.

My estimate is $1900 at 62, assuming all conditions remain the same (income, etc.). So next year, that estimate would be $2012.
VTI and chill until 57...
AnEngineer
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Re: Should I include social security in my retirement planning?

Post by AnEngineer »

JoeRetire wrote: Thu Dec 02, 2021 1:39 pm If you want to play the "but laws can change" argument, then there's no need for further discussion, since under those conditions planning is irrelevant.
It's not irrelevant, just imprecise.
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JoeRetire
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Re: Should I include social security in my retirement planning?

Post by JoeRetire »

AnEngineer wrote: Thu Dec 02, 2021 2:06 pm
JoeRetire wrote: Thu Dec 02, 2021 1:39 pm If you want to play the "but laws can change" argument, then there's no need for further discussion, since under those conditions planning is irrelevant.
It's not irrelevant, just imprecise.
Perhaps a better term is "a waste of time".
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AnEngineer
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Re: Should I include social security in my retirement planning?

Post by AnEngineer »

JoeRetire wrote: Thu Dec 02, 2021 2:09 pm
AnEngineer wrote: Thu Dec 02, 2021 2:06 pm
JoeRetire wrote: Thu Dec 02, 2021 1:39 pm If you want to play the "but laws can change" argument, then there's no need for further discussion, since under those conditions planning is irrelevant.
It's not irrelevant, just imprecise.
Perhaps a better term is "a waste of time".
I'm pretty sure we all believe both that laws can change and that planning isn't a waste of time.
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JoeRetire
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Re: Should I include social security in my retirement planning?

Post by JoeRetire »

AnEngineer wrote: Thu Dec 02, 2021 2:16 pm
JoeRetire wrote: Thu Dec 02, 2021 2:09 pm
AnEngineer wrote: Thu Dec 02, 2021 2:06 pm
JoeRetire wrote: Thu Dec 02, 2021 1:39 pm If you want to play the "but laws can change" argument, then there's no need for further discussion, since under those conditions planning is irrelevant.
It's not irrelevant, just imprecise.
Perhaps a better term is "a waste of time".
I'm pretty sure we all believe both that laws can change and that planning isn't a waste of time.
If I let "but laws can change" affect my planning, I wouldn't waste my time. But I don't.

Whenever you make plans/projections, you must make simplifying assumptions.
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AnEngineer
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Re: Should I include social security in my retirement planning?

Post by AnEngineer »

JoeRetire wrote: Thu Dec 02, 2021 2:37 pm If I let "but laws can change" affect my planning, I wouldn't waste my time. But I don't.
So you plan on the laws not changing?
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JoeRetire
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Re: Should I include social security in my retirement planning?

Post by JoeRetire »

AnEngineer wrote: Thu Dec 02, 2021 2:44 pm
JoeRetire wrote: Thu Dec 02, 2021 2:37 pm If I let "but laws can change" affect my planning, I wouldn't waste my time. But I don't.
So you plan on the laws not changing?
"IMHO, it would be foolish to ignore a guaranteed, tax-beneficial, spouse/survivor beneficial, inflation protected income stream."
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Normchad
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Re: Should I include social security in my retirement planning?

Post by Normchad »

JoeRetire wrote: Thu Dec 02, 2021 2:50 pm
AnEngineer wrote: Thu Dec 02, 2021 2:44 pm
JoeRetire wrote: Thu Dec 02, 2021 2:37 pm If I let "but laws can change" affect my planning, I wouldn't waste my time. But I don't.
So you plan on the laws not changing?
"IMHO, it would be foolish to ignore a guaranteed, tax-beneficial, spouse/survivor beneficial, inflation protected income stream."
Right? We all have to make plans. We can only make them using the information and laws we have at the time. The future is always uncertain. We all need to be able (and willing) to change our views, our plans, our goals, our behaviors when new information brome’s available. Just need to be aware of the need for flexibility.

In terms of uncertainty though, my plans hinge on lots of things. And the future if social security is one that I worry the least about.
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cockersx3
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Re: Should I include social security in my retirement planning?

Post by cockersx3 »

dcabler wrote: Thu Dec 02, 2021 7:31 am To your first question, I assume my full benefits when I start at age 70 and then a 24% haircut beginning in 2033 as described in the following link:
https://www.ssa.gov/oact/TRSUM/

This is the official view of the SSA trustees. If this changes (and it has in the past), I will change how I plan accordingly.

cheers
+1. This is how we plan as well, simply based on current law. I take a similar approach towards tax planning, in that I assume that the current rates / law will continue into the future. When tax laws change, I'll assess the impact on my portfolio and act accordingly. All you can really do, as this is entirely out of our control.
AnEngineer
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Re: Should I include social security in my retirement planning?

Post by AnEngineer »

JoeRetire wrote: Thu Dec 02, 2021 2:50 pm
AnEngineer wrote: Thu Dec 02, 2021 2:44 pm
JoeRetire wrote: Thu Dec 02, 2021 2:37 pm If I let "but laws can change" affect my planning, I wouldn't waste my time. But I don't.
So you plan on the laws not changing?
"IMHO, it would be foolish to ignore a guaranteed, tax-beneficial, spouse/survivor beneficial, inflation protected income stream."
Since we've now gone in circles I'll make one more attempt at clarification. I agree with the statement as I understand it. I don't think it applies here because social security is not guaranteed in the strong sense of the word that I usually see.

If instead by "guarantee" you mean that the government has merely promised that it'll pay out, but there's no backing to the promise, then I'd agree with an emphasis on the word "ignore". How people want to account for it is the point of this thread and I don't have much to add.

I also quibble with the idea that the government has made any pledge or promise that social security will exist in the future with the currently existing rules. If somewhere in the law it does this, I'd accept it but be surprised. The existence of a set of rules now is not a promise that it will continue in the future. However, it does make a good starting point for planning for the future.
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JoeRetire
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Re: Should I include social security in my retirement planning?

Post by JoeRetire »

AnEngineer wrote: Thu Dec 02, 2021 3:03 pm
JoeRetire wrote: Thu Dec 02, 2021 2:50 pm
AnEngineer wrote: Thu Dec 02, 2021 2:44 pm
JoeRetire wrote: Thu Dec 02, 2021 2:37 pm If I let "but laws can change" affect my planning, I wouldn't waste my time. But I don't.
So you plan on the laws not changing?
"IMHO, it would be foolish to ignore a guaranteed, tax-beneficial, spouse/survivor beneficial, inflation protected income stream."
Since we've now gone in circles I'll make one more attempt at clarification. I agree with the statement as I understand it. I don't think it applies here because social security is not guaranteed in the strong sense of the word that I usually see.

If instead by "guarantee" you mean that the government has merely promised that it'll pay out, but there's no backing to the promise, then I'd agree with an emphasis on the word "ignore".


"The Social Security trust funds are invested entirely in U.S. Treasury securities. Like the Treasury bills, notes, and bonds purchased by private investors around the world, the Treasury securities that the trust funds hold are backed by the full faith and credit of the U.S. government. The U.S. government has never defaulted on its obligations, and investors consider U.S. government securities one of the world’s safest investments."

https://www.cbpp.org/research/social-se ... st-funds-0
How people want to account for it is the point of this thread and I don't have much to add.
Okay.
However, it does make a good starting point for planning for the future.
Okay.
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Re: Should I include social security in my retirement planning?

Post by LadyGeek »

For the record, Social Security is authorized under US law (legislation). Speculation about future legislation (what "might" happen) 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.

We do permit discussions which plan for reductions in Social Security, but not about the future of Social Security itself (political conjecture).

The discussion is getting contentious. The points have been made, let's move on.
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Re: Should I include social security in my retirement planning?

Post by willthrill81 »

EnjoyIt wrote: Thu Dec 02, 2021 1:00 pm
willthrill81 wrote: Thu Dec 02, 2021 11:22 am You may not get 100% of your 'promised' benefits. In fact, under current law, SS benefits across the board will be cut by around 20% by 2034. But 80% is a lot more than 0%, and ignoring it in your planning can, at a minimum, result in you paying more in taxes than otherwise.
If my memory serves me right, you plan to retire early. Not sure what age that means, but if it is 50 for example, how do you account for SS in you plan today?

I agree that SS will be there, but today knowing that information does not change the fact that I will need $X every year for 20+ years and SS won’t help me today. Sure using an ABW or VPW can take it into account but still 20+ years away is a long time.
Even with me retiring early, deferring SS benefits to age 70, when combined with my DW's spousal benefit, should cover all of our essential spending, even with the anticipated 20% haircut in benefits. That means that our portfolio will need to fund both our essential and discretionary spending between age 45 and 70 and only discretionary spending after age 70. Knowing that our withdrawals will plummet at age 70 is definitely helpful as it means that we can safely spend more from age 45 to 70 than otherwise, and yes, ABW can easily take that into account.
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markcoop
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Re: Should I include social security in my retirement planning?

Post by markcoop »

I have my own spreadsheet where I map out retirement till age 100. I do use the full SS starting at age 70. I have a list of assumptions at the the top of the page that I can modify. One assumption is how much to discount SS. I usually have it set to 0, but I have played around with other values, such as 22%, to see what the results yield. So I guess I do some of both in my planning.
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Re: Should I include social security in my retirement planning?

Post by dcabler »

cockersx3 wrote: Thu Dec 02, 2021 2:59 pm
dcabler wrote: Thu Dec 02, 2021 7:31 am To your first question, I assume my full benefits when I start at age 70 and then a 24% haircut beginning in 2033 as described in the following link:
https://www.ssa.gov/oact/TRSUM/

This is the official view of the SSA trustees. If this changes (and it has in the past), I will change how I plan accordingly.

cheers
+1. This is how we plan as well, simply based on current law. I take a similar approach towards tax planning, in that I assume that the current rates / law will continue into the future. When tax laws change, I'll assess the impact on my portfolio and act accordingly. All you can really do, as this is entirely out of our control.
Yes, indeed!

Cheers.
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Re: Should I include social security in my retirement planning?

Post by cbs2002 »

Chadnudj wrote: Thu Dec 02, 2021 1:21 pm
Have you tried this one? I find it pretty intuitive, and it lets you include a spouse: https://ssa.tools/calculator.html
THANK YOU! The SSA calculators do not let you exclude future earning years, or at least I have not figured out how to do that. This one does!
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BrandonBogle
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Re: Should I include social security in my retirement planning?

Post by BrandonBogle »

cbs2002 wrote: Thu Dec 02, 2021 4:56 pm
Chadnudj wrote: Thu Dec 02, 2021 1:21 pm
Have you tried this one? I find it pretty intuitive, and it lets you include a spouse: https://ssa.tools/calculator.html
THANK YOU! The SSA calculators do not let you exclude future earning years, or at least I have not figured out how to do that. This one does!
When you log into your social security account, you have the option of using their simulator and one of the options is benefit projections from 62 - 70 if you exclude all future years. Now, you can't exclude from a certain point in the future, just everything after today, but the option is indeed there.
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Re: Should I include social security in my retirement planning?

Post by VaR »

Why not model both extremes, with full social security and without any social security, and see what impact it has and how much you have to take it into account in your retirement planning?
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Re: Should I include social security in my retirement planning?

Post by markcoop »

VaR wrote: Thu Dec 02, 2021 5:50 pm Why not model both extremes, with full social security and without any social security, and see what impact it has and how much you have to take it into account in your retirement planning?
I believe that's exactly what people should be doing. Of course, there are many other assumptions (I view them more as inputs) as well. I think the 4 biggest inputs to any model are the following:
1) Rate of inflation
2) Stock returns
3) Bond returns
4) SS

One should be modeling different values for all these inputs. So, try with 100% SS and any other % of SS that you think is reasonable.
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Re: Should I include social security in my retirement planning?

Post by RickyAZ »

Assume it’s going to be there. Model 50% if you want to be conservative.
If it’s not then you’re investment assumptions about your own savings won’t be worth anything anyway
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Eagle33
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Re: Should I include social security in my retirement planning?

Post by Eagle33 »

markcoop wrote: Thu Dec 02, 2021 8:32 pm
VaR wrote: Thu Dec 02, 2021 5:50 pm Why not model both extremes, with full social security and without any social security, and see what impact it has and how much you have to take it into account in your retirement planning?
I believe that's exactly what people should be doing. Of course, there are many other assumptions (I view them more as inputs) as well. I think the 4 biggest inputs to any model are the following:
1) Rate of inflation
2) Stock returns
3) Bond returns
4) SS

One should be modeling different values for all these inputs. So, try with 100% SS and any other % of SS that you think is reasonable.
The big input IMHO is your savings rate.
flyingaway
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Re: Should I include social security in my retirement planning?

Post by flyingaway »

You are still too early to ask for that question. Wait until you are 50 years old.

If you have enough money before you are 50 years old, then that is no longer a question.
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Re: Should I include social security in my retirement planning?

Post by DoctorPhysics »

I don't include SSI in retirement planing or estimates on my retirement number.

Why? Too far out, and the rules of the game change.
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Re: Should I include social security in my retirement planning?

Post by markcoop »

Eagle33 wrote: Fri Dec 03, 2021 8:52 pm
markcoop wrote: Thu Dec 02, 2021 8:32 pm
VaR wrote: Thu Dec 02, 2021 5:50 pm Why not model both extremes, with full social security and without any social security, and see what impact it has and how much you have to take it into account in your retirement planning?
I believe that's exactly what people should be doing. Of course, there are many other assumptions (I view them more as inputs) as well. I think the 4 biggest inputs to any model are the following:
1) Rate of inflation
2) Stock returns
3) Bond returns
4) SS

One should be modeling different values for all these inputs. So, try with 100% SS and any other % of SS that you think is reasonable.
The big input IMHO is your savings rate.
Yes, good point and I agree. I probably should have added that for someone so far away from retirement. Obviously, the closer you are to retirement, the less that matters. I do not think of savings as an important input in my case as I am closer to retirement and already max out all retirement plans available. Of course, one could always save more sacrificing things today. I think the savings question is more a different thought process - It's about how much I am able to sacrifice today for tomorrow. The rest of these inputs are beyond my control how they turn out.
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Re: Should I include social security in my retirement planning?

Post by Mr. Rumples »

Err on the side of caution. Many decades ago, when I started to work, the general rule of thumb was social security was going to be half and I'd have to make up the other half. I figured it would only be 1/3; I'm glad I took a more conservative approach. In 1983 social security was reformed and retirees took a hair cut*; not only did benefits become taxable, but the amount was not and is not to this day indexed to inflation; thus while most people did not pay income tax on their benefits in 1983, most do today; who knows what the future holds.

*1983 change on taxes on benefits:
https://www.ssa.gov/history/taxationofbenefits.html
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Eagle33
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Re: Should I include social security in my retirement planning?

Post by Eagle33 »

Mr. Rumples wrote: Sat Dec 04, 2021 8:36 am Err on the side of caution. Many decades ago, when I started to work, the general rule of thumb was social security was going to be half and I'd have to make up the other half. I figured it would only be 1/3; I'm glad I took a more conservative approach. In 1983 social security was reformed and retirees took a hair cut*; not only did benefits become taxable, but the amount was not and is not to this day indexed to inflation; thus while most people did not pay income tax on their benefits in 1983, most do today; who knows what the future holds.

*1983 change on taxes on benefits:
https://www.ssa.gov/history/taxationofbenefits.html
Back in high school in the early 70's I was taught about the 3-legged retirement stool with SS being one of the legs - SS = 1/3 of needed retirement income.
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