Can you ignore social security in your calculations?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
JoeRetire
Posts: 15381
Joined: Tue Jan 16, 2018 1:44 pm

Re: Can you ignore social security in your calculations?

Post by JoeRetire »

bobcat2 wrote: Mon Aug 30, 2021 2:43 pmAfter all SS is three decades older than Medicare. So in the past SS was deemed the more important program. Otherwise, why would it be thirty years older?
That date at which an entitlement program was begun has nothing to do with it's importance today, nor how it may be changed in the future.

I do agree that neither Medicare nor Social Security will go away, nor will they be fundamentally changed, just tweaked.
Just my personal opinion. Not trying to speculate about future legislation here...
This isn't just my wallet. It's an organizer, a memory and an old friend.
DB2
Posts: 1396
Joined: Thu Jan 17, 2019 9:07 pm

Re: Can you ignore social security in your calculations?

Post by DB2 »

bobcat2 wrote: Mon Aug 30, 2021 2:43 pm
DB2 wrote: Mon Aug 30, 2021 1:10 pm
bobcat2 wrote: Sun Aug 29, 2021 11:47 am Medicare is in much worse financial shape than Social Security and by the time you retire will be about as valuable a resource as Social Security for most Americans. That's because medical costs rise faster than overall inflation. So why ignore SS but not Medicare? Note that the Medicare lifetime benefit is net of premiums. Those rising premiums will come nowhere close to paying for the rising cost of Medicare benefits.


BobK
1. Because I don't see the government denying a 70-year-old a heart bypass vs over a certain amount for a SS check. If one has to give, it will be SS first. Denying health care is less acceptable.
Medicare pays a percentage of the cost of surgeries. In the future the government could pay a smaller percentage. Nothing hard about that happening. Personally, don't think Medicare or SS will be cut much in the future. But if cutting does occur, it will be just as easy to cut back Medicare as SS. After all SS is three decades older than Medicare. So in the past SS was deemed the more important program. Otherwise, why would it be thirty years older?

BobK
Health care evolved/advanced significantly in the earlier part of the 20th century. When SS was formed, there wasn't nearly as many health options, surgeries, treatments as to what advanced 30 years later. It was "relatively" inexpensive. People also were not living nearly as long (another issue that happened to SS). Those treatments were deemed to expensive to pay 100% privately in later years, hence, Medicare was formed. So the govt would pick up the tab on most of it after a certain age.

However it plays out...what is odd to me is, the current tax rate for SS is 6.2% for the Employer and 6.2% for the Employee (12.4% total).

The current rate for Medicare is 1.45% for the Employer and 1.45% for the Employee...2.9% total. That doesn't seem very much even after the individual pays for the gap insurance.
Wannaretireearly
Posts: 4880
Joined: Wed Mar 31, 2010 4:39 pm

Re: Can you ignore social security in your calculations?

Post by Wannaretireearly »

It's a significant benefit after working 20 to 35 years. In the thousands a month, cannot be discounted by me. For comparison, UK pension benefit is in the hundreds per month. US pension is comparatively large. Not factoring healthcare etc.

Tangible effect: if it somehow went away, this would impact my plan to retire at 50. That's how big SS is, especially as our only annuity like stream. Just 401k and Roth camp for us, no golden pension!

I may not account for it much on paper/here for calculations. But, it's always in the back of my mind. E.g. I'll need at least 15 years of expenses saved/spent before I get to the 'safety' of SS, assuming RE around 50.
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
User avatar
bobcat2
Posts: 6076
Joined: Tue Feb 20, 2007 2:27 pm
Location: just barely Outside the Beltway

Re: Can you ignore social security in your calculations?

Post by bobcat2 »

DB2 wrote: Mon Aug 30, 2021 3:49 pmHowever it plays out...what is odd to me is, the current tax rate for SS is 6.2% for the Employer and 6.2% for the Employee (12.4% total).

The current rate for Medicare is 1.45% for the Employer and 1.45% for the Employee...2.9% total. That doesn't seem very much even after the individual pays for the gap insurance.
Yes. And that's why Medicare is so much more underfunded than SS. The programs are currently not that much different in size and in a few years Medicare is expected to be the more costly program. Two programs of roughly equal size one slightly underfunded (SS) and the other vastly underfunded (Medicare).

Married couple with two average earners ($112,000 in 2020 dollars) age 65 in 2040

Code: Select all

                                            Expected PV of Lifetime Benefits
            1st yr SS benefit               SS            Medicare (net of ann premiums)        Total
2040           51,000                     889,000         843,000                              1,732,000                                        
How much worse off financially is Medicare compared to SS? Here's the shortfall for lifetime benefits less taxes paid for SS & Medicare for the above couple.

Code: Select all

Soc Sec    -$104,000
Medicare   -$634,000
Source: Urban Institute - Social Security & Medicare Lifetime Benefits
Link to report - https://www.urban.org/research/publica ... ll_report

BobK
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: Can you ignore social security in your calculations?

Post by secondopinion »

Can you ignore social security in your calculations?
Here is my take:

It has a factor of your age; the younger you are, the more allowance there is to ignore social security. This is because you are more likely not to have it (retire too early, SS fails, etc.), need it, or otherwise have it be a mute issue. As you get closer to the age to pull from social security, the more information you have to gauge decisions concerning it.

Essentially, I ignore social security for now; too much can happen in life to have any real confidence in it given 30+ years before I can take a dime.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
523HRR
Posts: 176
Joined: Tue Mar 11, 2014 8:27 pm

Re: Can you ignore social security in your calculations?

Post by 523HRR »

Our combined DB pensions will exceed our annual household expenses and taxes so, while we do plan on receiving Social Security income, we just view it as gravy.
Admiral
Posts: 5039
Joined: Mon Oct 27, 2014 12:35 pm

Re: Can you ignore social security in your calculations?

Post by Admiral »

I submit that at a certain level of assets, sure, you can ignore anything that's 10% of your income. Because...it's 10%. If you're scraping by on $30k per year, then you cannot afford to give up $3k. If you're at $100k, you will be fine on $90k.

Thus, I don't get the point of the OP. Ignoring SS for most people is not only silly but potentially disastrous from a financial planning perspective. It A) forces you to work longer and B) potentially forces you to take more risk than necessary. If you want to discount your future payment, for any number of reasons, by all means do that.

If you have plenty of assets or a low cost of living, or both, that's great for you, and you can ignore any income stream you please. You'll still get your social security, and you can give it away. You can also ignore Medicare and spend lots of money on a private insurance plan. Lots of people do that.

But since you paid a LOT of money into both, I'm not sure why you would do that.
smitcat
Posts: 13300
Joined: Mon Nov 07, 2016 9:51 am

Re: Can you ignore social security in your calculations?

Post by smitcat »

retireIn2020 wrote: Mon Aug 30, 2021 2:29 pm
smitcat wrote: Mon Aug 30, 2021 2:24 pm
retireIn2020 wrote: Mon Aug 30, 2021 2:03 pm
JoeRetire wrote: Mon Aug 30, 2021 12:47 pm
retireIn2020 wrote: Mon Aug 30, 2021 3:14 am Example; Joe makes an average of $100k per year for 35 years, deducted from pay at 6.2% paid by employee and 6.2% employer. Joe paid $434,000 out of his pay over that time period. If he's paid weekly that's about $120.00 per week from him and $120.00 per week from his employer. At a 3% interest rate that's about $765,000.00 at the end of the 35 year period.
What does "a 3% interest rate" have to do with anything?
Nothing really, but if Joe put that 12.4% towards treasuries or in a 401k stable value fund (instead of SS) the return would have been around 3%.
But would Joe really have made $100,000 salary 35 years back?
No, 100k is average over 35 years. 50k 35 years ago and 200k today. Pick any number and use 12.4% per pay period x pay period per year x 35.
If Joe makes $200K today he is definately not average.
"Pick any number and use 12.4% per pay period x pay period per year x 35."
Does not work, the maximum SS limits varied each year.
In your example 35 years ago, in 1985, the SS maximum taxable income was $39.6K.
User avatar
retireIn2020
Posts: 745
Joined: Sat Jan 04, 2020 5:13 pm

Re: Can you ignore social security in your calculations?

Post by retireIn2020 »

smitcat wrote: Mon Aug 30, 2021 4:53 pm
retireIn2020 wrote: Mon Aug 30, 2021 2:29 pm
smitcat wrote: Mon Aug 30, 2021 2:24 pm
retireIn2020 wrote: Mon Aug 30, 2021 2:03 pm
JoeRetire wrote: Mon Aug 30, 2021 12:47 pm
What does "a 3% interest rate" have to do with anything?
Nothing really, but if Joe put that 12.4% towards treasuries or in a 401k stable value fund (instead of SS) the return would have been around 3%.
But would Joe really have made $100,000 salary 35 years back?
No, 100k is average over 35 years. 50k 35 years ago and 200k today. Pick any number and use 12.4% per pay period x pay period per year x 35.
If Joe makes $200K today he is definitely not average.
"Pick any number and use 12.4% per pay period x pay period per year x 35."
Does not work, the maximum SS limits varied each year.
In your example 35 years ago, in 1985, the SS maximum taxable income was $39.6K.
Ok, I used 100k since it was an nice round number and I agree it was not a good example.

My record on the SS site for the last 35 years averaged 70k per year. 35k in 1985 and 140k in 2020 I've always been close to the maximum SS tax (one side or the other). I paid allot into the SS trust fund, and I do count it in my calculations, well, I should say my Fidelity planning tool uses it in its modeling. Every Financial advisor that I've met with has always calculated SS benefits for their projections. My plan has me taking it at 70, I see it as an inflation protected longevity insurance, which is why it was created. Social Security is an Insurance program and I agree with the OP.
https://www.merriam-webster.com/dictionary/abide
smitcat
Posts: 13300
Joined: Mon Nov 07, 2016 9:51 am

Re: Can you ignore social security in your calculations?

Post by smitcat »

retireIn2020 wrote: Mon Aug 30, 2021 5:59 pm
smitcat wrote: Mon Aug 30, 2021 4:53 pm
retireIn2020 wrote: Mon Aug 30, 2021 2:29 pm
smitcat wrote: Mon Aug 30, 2021 2:24 pm
retireIn2020 wrote: Mon Aug 30, 2021 2:03 pm

Nothing really, but if Joe put that 12.4% towards treasuries or in a 401k stable value fund (instead of SS) the return would have been around 3%.
But would Joe really have made $100,000 salary 35 years back?
No, 100k is average over 35 years. 50k 35 years ago and 200k today. Pick any number and use 12.4% per pay period x pay period per year x 35.
If Joe makes $200K today he is definitely not average.
"Pick any number and use 12.4% per pay period x pay period per year x 35."
Does not work, the maximum SS limits varied each year.
In your example 35 years ago, in 1985, the SS maximum taxable income was $39.6K.
Ok, I used 100k since it was an nice round number and I agree it was not a good example.

My record on the SS site for the last 35 years averaged 70k per year. 35k in 1985 and 140k in 2020 I've always been close to the maximum SS tax (one side or the other). I paid allot into the SS trust fund, and I do count it in my calculations, well, I should say my Fidelity planning tool uses it in its modeling. Every Financial advisor that I've met with has always calculated SS benefits for their projections. My plan has me taking it at 70, I see it as an inflation protected longevity insurance, which is why it was created. Social Security is an Insurance program and I agree with the OP.
"I paid allot into the SS trust fund"
It's kind of irrelvant what you paid in.
"and I do count it in my calculations"
That is a great way to plan... in my opinion.
User avatar
retireIn2020
Posts: 745
Joined: Sat Jan 04, 2020 5:13 pm

Re: Can you ignore social security in your calculations?

Post by retireIn2020 »

smitcat wrote: Mon Aug 30, 2021 7:12 pm It's kind of irrelvant what you paid in.
I disagree, the more you pay to more you get back. :sharebeer
https://www.merriam-webster.com/dictionary/abide
smitcat
Posts: 13300
Joined: Mon Nov 07, 2016 9:51 am

Re: Can you ignore social security in your calculations?

Post by smitcat »

retireIn2020 wrote: Mon Aug 30, 2021 7:49 pm
smitcat wrote: Mon Aug 30, 2021 7:12 pm It's kind of irrelvant what you paid in.
I disagree, the more you pay to more you get back. :sharebeer
You thoughts are that the amount you payt is directly related to the amount you get back, interesting....
So a person who paid in just above the second bend point gets the same as...
the person who paid in 1.5X the maximum income limit gets the same as...
the spouse of a maximum contributor who never worked at all gets the same as...
the small business owner who paid in twice the maximum income limits gets the same as....

No relation at all to what you paid in actually - only important to track and consider what you will get in benifits.
User avatar
22twain
Posts: 4030
Joined: Thu May 10, 2012 5:42 pm

Re: Can you ignore social security in your calculations?

Post by 22twain »

retireIn2020 wrote: Mon Aug 30, 2021 2:29 pm
smitcat wrote: Mon Aug 30, 2021 2:24 pm [But would Joe really have made $100,000 salary 35 years back?
No, 100k is average over 35 years. 50k 35 years ago and 200k today. Pick any number and use 12.4% per pay period x pay period per year x 35.
This year, Joe and his employer would pay that 12.4% on only about $143k of that $200k. 35 years ago (1986), they would have paid it on on only $42k of the initial $50k.

https://www.ssa.gov/oact/cola/cbb.html
Meet my pet, Peeve, who loves to convert non-acronyms into acronyms: FED, ROTH, CASH, IVY, ...
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

Re: Can you ignore social security in your calculations?

Post by delamer »

22twain wrote: Tue Aug 31, 2021 9:23 am
retireIn2020 wrote: Mon Aug 30, 2021 2:29 pm
smitcat wrote: Mon Aug 30, 2021 2:24 pm [But would Joe really have made $100,000 salary 35 years back?
No, 100k is average over 35 years. 50k 35 years ago and 200k today. Pick any number and use 12.4% per pay period x pay period per year x 35.
This year, Joe and his employer would pay that 12.4% on only about $143k of that $200k. 35 years ago (1986), they would have paid it on on only $42k of the initial $50k.

https://www.ssa.gov/oact/cola/cbb.html
And at a much lower rate: https://www.ssa.gov/oact/progdata/taxRates.html
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
MnD
Posts: 5194
Joined: Mon Jan 14, 2008 11:41 am

Re: Can you ignore social security in your calculations?

Post by MnD »

Ignoring assets or income streams is just a lot of mental accounting.

In real life I know several people who are completely ignoring their very substantial investment portfolios.
They are receiving enough in SS, pension, rental income etc. to completely fund their retirement.
They don't really have any plans or utility for their portfolio other than to have it like a coin collection.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
bberris
Posts: 2420
Joined: Sun Feb 20, 2011 8:44 am

Re: Can you ignore social security in your calculations?

Post by bberris »

If you want to lower your standard of living and leave more for your heirs, sure, you can ignore it.
User avatar
retireIn2020
Posts: 745
Joined: Sat Jan 04, 2020 5:13 pm

Re: Can you ignore social security in your calculations?

Post by retireIn2020 »

22twain wrote: Tue Aug 31, 2021 9:23 am
retireIn2020 wrote: Mon Aug 30, 2021 2:29 pm
smitcat wrote: Mon Aug 30, 2021 2:24 pm [But would Joe really have made $100,000 salary 35 years back?
No, 100k is average over 35 years. 50k 35 years ago and 200k today. Pick any number and use 12.4% per pay period x pay period per year x 35.
This year, Joe and his employer would pay that 12.4% on only about $143k of that $200k. 35 years ago (1986), they would have paid it on on only $42k of the initial $50k.

https://www.ssa.gov/oact/cola/cbb.html
You missed my earlier post stating 100k was a bad example. 70k is pretty much the average maximum over the last 35 years.
https://www.merriam-webster.com/dictionary/abide
User avatar
retireIn2020
Posts: 745
Joined: Sat Jan 04, 2020 5:13 pm

Re: Can you ignore social security in your calculations?

Post by retireIn2020 »

delamer wrote: Tue Aug 31, 2021 9:36 am And at a much lower rate: https://www.ssa.gov/oact/progdata/taxRates.html
It was 5.7% in 1985, went to 6.06 in 1988 and the current 6.2% started in 1990. Remember, you double that figure since you employer pays the same amount on your behalf.

So for a couple of the early lower earnings years it was slightly less, Not sure where you come up with "a much lower rate"?
https://www.merriam-webster.com/dictionary/abide
reln
Posts: 718
Joined: Fri Apr 19, 2019 4:01 pm

Re: Can you ignore social security in your calculations?

Post by reln »

wrongfunds wrote: Sat Aug 28, 2021 11:02 am Often some of the BH say that they do not want to depend upon social security at all. Some even go as far as saying that they expect it be less than 10% of their income stream when they draw it. On the surface, that sounds like a sound but conservative strategy.

Doing the back of the napkin calculations, in reality it seems to be quite far fetched.

Today the maximum benefit if you delay until 70 is about 49K per year. For the same individual if taken at 62 is about 27K. Let us just round up those numbers and call them $50K and $25K.

To make social security benefit of $50K less than 10% of your total income stream means your own investible portfolio is over $12.5M If your spouse is in similar position, he needs to have another $12.5M. If your household investible portfolio is $25M, your social security is only 10% if taken at 70.

I was really surprised with those numbers but the math is not lying here. To generate $50K, you do need $1.25M in investible assets using the standard 4% withdrawal rate. And if that is less than 10%, then your need $12.5M in investible assets.

The same exercise also brings out that ignoring everything else, the needed portfolio difference is approximately $0.5M between taking $27K at 62 vs taking $50K at 70, if everything remains the same (but of course everything is NOT the same because you are now 8 year closer to your death!)

Could that argument sway somebody who has already decided to take it at 62? I am afraid not! I was not able to convince my best friend to delay. The decision seems to be more emotional and personal than analytical. And I do not know any other person who is more analytical than my best friend.

TLDR; very very few can afford to ignore social security. But if they can, they are already participating here :-)
To some people the fear of missing out on their SS income will weigh on them too much and stress them out (maybe cutting into their longevity). For these people delaying SS is not worth it. Advise a bit but then let it go.
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

Re: Can you ignore social security in your calculations?

Post by delamer »

retireIn2020 wrote: Tue Aug 31, 2021 3:18 pm
delamer wrote: Tue Aug 31, 2021 9:36 am And at a much lower rate: https://www.ssa.gov/oact/progdata/taxRates.html
It was 5.7% in 1985, went to 6.06 in 1988 and the current 6.2% started in 1990. Remember, you double that figure since you employer pays the same amount on your behalf.

So for a couple of the early lower earnings years it was slightly less, Not sure where you come up with "a much lower rate"?
It’s about an 8% difference. Whether that’s much lower is subjective.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Texanbybirth
Posts: 1612
Joined: Tue Apr 14, 2015 12:07 pm

Re: Can you ignore social security in your calculations?

Post by Texanbybirth »

I don't ignore it. I take a few minutes a year and do the below calculation.

In ssa.tools I paste my earnings record. Then I put in the number of years till I'm 66 as years left to work (my wife is 14 mo younger than me, so I need to work till both of us can get Medicare) and for income I use the BLS median earnings for my profession (accountant) in my metro area (conveniently listed). I make significantly more than that now so it's reflected in my earnings record, but I'm fairly confident I can make the median wage and we could live on it, if need be. I take the benefit amount it spits out at 66 multiply it by 75%. If I'm feeling liberal, I multiply that number by 1.5 to account for both of us being alive/her getting spousal benefits. Otherwise conservatively, I die the day I retire and my wife gets my SS benefit. :D

I then put this result in the "DB Pension #1" field in the VPW spreadsheet to help me spitball an annual amount to save for retirement. This year's calculation spit out 19% as a goal to save toward. We've exceeded that (with employer match), so I consider this year a good year.

Once a year, I definitely take 10 minutes to estimate my SS benefit when planning. :beer
“The strong cannot be brave. Only the weak can be brave; and yet again, in practice, only those who can be brave can be trusted, in time of doubt, to be strong.“ - GK Chesterton
User avatar
retireIn2020
Posts: 745
Joined: Sat Jan 04, 2020 5:13 pm

Re: Can you ignore social security in your calculations?

Post by retireIn2020 »

delamer wrote: Tue Aug 31, 2021 3:41 pm
retireIn2020 wrote: Tue Aug 31, 2021 3:18 pm
delamer wrote: Tue Aug 31, 2021 9:36 am And at a much lower rate: https://www.ssa.gov/oact/progdata/taxRates.html
It was 5.7% in 1985, went to 6.06 in 1988 and the current 6.2% started in 1990. Remember, you double that figure since you employer pays the same amount on your behalf.

So for a couple of the early lower earnings years it was slightly less, Not sure where you come up with "a much lower rate"?
It’s about an 8% difference. Whether that’s much lower is subjective.
Did you mean .8% difference? How did you come up with 8%?
https://www.merriam-webster.com/dictionary/abide
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

Re: Can you ignore social security in your calculations?

Post by delamer »

retireIn2020 wrote: Tue Aug 31, 2021 4:42 pm
delamer wrote: Tue Aug 31, 2021 3:41 pm
retireIn2020 wrote: Tue Aug 31, 2021 3:18 pm
delamer wrote: Tue Aug 31, 2021 9:36 am And at a much lower rate: https://www.ssa.gov/oact/progdata/taxRates.html
It was 5.7% in 1985, went to 6.06 in 1988 and the current 6.2% started in 1990. Remember, you double that figure since you employer pays the same amount on your behalf.

So for a couple of the early lower earnings years it was slightly less, Not sure where you come up with "a much lower rate"?
It’s about an 8% difference. Whether that’s much lower is subjective.
Did you mean .8% difference? How did you come up with 8%?
Divide 5.7 by 6.2. It’s about 8% less.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
User avatar
retireIn2020
Posts: 745
Joined: Sat Jan 04, 2020 5:13 pm

Re: Can you ignore social security in your calculations?

Post by retireIn2020 »

delamer wrote: Tue Aug 31, 2021 4:47 pm
retireIn2020 wrote: Tue Aug 31, 2021 4:42 pm
delamer wrote: Tue Aug 31, 2021 3:41 pm
retireIn2020 wrote: Tue Aug 31, 2021 3:18 pm
delamer wrote: Tue Aug 31, 2021 9:36 am And at a much lower rate: https://www.ssa.gov/oact/progdata/taxRates.html
It was 5.7% in 1985, went to 6.06 in 1988 and the current 6.2% started in 1990. Remember, you double that figure since you employer pays the same amount on your behalf.

So for a couple of the early lower earnings years it was slightly less, Not sure where you come up with "a much lower rate"?
It’s about an 8% difference. Whether that’s much lower is subjective.
Did you mean .8% difference? How did you come up with 8%?
Divide 5.7 by 6.2. It’s about 8% less.
Ok, so that what you say is clear, we can agree the 8 percent difference is; The amount paid in to social security during the 1st 3 years from 1985 to 1988 and NOT the amount deducted from payroll over the long haul.

So if Joe made 35k in 1985 he paid in $1995 (5.7% of pay) instead of $2170 (todays rate of 6.2% of pay), a difference of $175.00 for the year.

The amount deducted from pay jumped to 6.06% in 1988 then to the current rate of 6.2% in 1990. No need to do the math because the early years at low pay make this argument a moot point. Your comparing less than $1000 dollars over the period from 1985 to 1988, to hundreds of thousands of dollars over 35 years of increasing income with minimal interest (the trust fund invests in treasury bonds).

So if Joe made 137k in 2020, he paid in $8537.00 that year. Do you see where I'm going here?

IMO, "a much lower rate" does not hold water when you do the math!
:beer
https://www.merriam-webster.com/dictionary/abide
smitcat
Posts: 13300
Joined: Mon Nov 07, 2016 9:51 am

Re: Can you ignore social security in your calculations?

Post by smitcat »

retireIn2020 wrote: Tue Aug 31, 2021 11:24 pm
delamer wrote: Tue Aug 31, 2021 4:47 pm
retireIn2020 wrote: Tue Aug 31, 2021 4:42 pm
delamer wrote: Tue Aug 31, 2021 3:41 pm
retireIn2020 wrote: Tue Aug 31, 2021 3:18 pm

It was 5.7% in 1985, went to 6.06 in 1988 and the current 6.2% started in 1990. Remember, you double that figure since you employer pays the same amount on your behalf.

So for a couple of the early lower earnings years it was slightly less, Not sure where you come up with "a much lower rate"?
It’s about an 8% difference. Whether that’s much lower is subjective.
Did you mean .8% difference? How did you come up with 8%?
Divide 5.7 by 6.2. It’s about 8% less.
Ok, so that what you say is clear, we can agree the 8 percent difference is; The amount paid in to social security during the 1st 3 years from 1985 to 1988 and NOT the amount deducted from payroll over the long haul.

So if Joe made 35k in 1985 he paid in $1995 (5.7% of pay) instead of $2170 (todays rate of 6.2% of pay), a difference of $175.00 for the year.

The amount deducted from pay jumped to 6.06% in 1988 then to the current rate of 6.2% in 1990. No need to do the math because the early years at low pay make this argument a moot point. Your comparing less than $1000 dollars over the period from 1985 to 1988, to hundreds of thousands of dollars over 35 years of increasing income with minimal interest (the trust fund invests in treasury bonds).

So if Joe made 137k in 2020, he paid in $8537.00 that year. Do you see where I'm going here?

IMO, "a much lower rate" does not hold water when you do the math!
:beer
Going back to your original example and original math Joe did not pay that much into SS....."Example; Joe makes an average of $100k per year for 35 years, deducted from pay at 6.2% paid by employee and 6.2% employer. Joe paid $434,000 out of his pay over that time period. If he's paid weekly that's about $120.00 per week from him and $120.00 per week from his employer."

What does your actual SS account say that you paid over the 35 years averaging $70K over those years?
RJC
Posts: 1489
Joined: Fri Dec 14, 2018 12:40 pm

Re: Can you ignore social security in your calculations?

Post by RJC »

Yes, we have ignored SS and a Federal Pension from our calculations. They are the extra cushion just in case (e.g.; long-term care).
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

Re: Can you ignore social security in your calculations?

Post by delamer »

retireIn2020 wrote: Tue Aug 31, 2021 11:24 pm
delamer wrote: Tue Aug 31, 2021 4:47 pm
retireIn2020 wrote: Tue Aug 31, 2021 4:42 pm
delamer wrote: Tue Aug 31, 2021 3:41 pm
retireIn2020 wrote: Tue Aug 31, 2021 3:18 pm

It was 5.7% in 1985, went to 6.06 in 1988 and the current 6.2% started in 1990. Remember, you double that figure since you employer pays the same amount on your behalf.

So for a couple of the early lower earnings years it was slightly less, Not sure where you come up with "a much lower rate"?
It’s about an 8% difference. Whether that’s much lower is subjective.
Did you mean .8% difference? How did you come up with 8%?
Divide 5.7 by 6.2. It’s about 8% less.
Ok, so that what you say is clear, we can agree the 8 percent difference is; The amount paid in to social security during the 1st 3 years from 1985 to 1988 and NOT the amount deducted from payroll over the long haul.

So if Joe made 35k in 1985 he paid in $1995 (5.7% of pay) instead of $2170 (todays rate of 6.2% of pay), a difference of $175.00 for the year.

The amount deducted from pay jumped to 6.06% in 1988 then to the current rate of 6.2% in 1990. No need to do the math because the early years at low pay make this argument a moot point. Your comparing less than $1000 dollars over the period from 1985 to 1988, to hundreds of thousands of dollars over 35 years of increasing income with minimal interest (the trust fund invests in treasury bonds).

So if Joe made 137k in 2020, he paid in $8537.00 that year. Do you see where I'm going here?

IMO, "a much lower rate" does not hold water when you do the math!
:beer
I was simply pointing out in my initial comment that the tax rate changed over the last 35 years, so using the formula of “12.4% per pay period x pay period per year x 35” isn’t strictly accurate.

The change in the rate might not be important in terms of the point you were making, but that’s a different issue.

I never compared the actual dollar amounts involved to anything; I just looked at the rate change.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
User avatar
retireIn2020
Posts: 745
Joined: Sat Jan 04, 2020 5:13 pm

Re: Can you ignore social security in your calculations?

Post by retireIn2020 »

smitcat wrote: Wed Sep 01, 2021 9:07 am
retireIn2020 wrote: Tue Aug 31, 2021 11:24 pm
delamer wrote: Tue Aug 31, 2021 4:47 pm
retireIn2020 wrote: Tue Aug 31, 2021 4:42 pm
delamer wrote: Tue Aug 31, 2021 3:41 pm

It’s about an 8% difference. Whether that’s much lower is subjective.
Did you mean .8% difference? How did you come up with 8%?
Divide 5.7 by 6.2. It’s about 8% less.
Ok, so that what you say is clear, we can agree the 8 percent difference is; The amount paid in to social security during the 1st 3 years from 1985 to 1988 and NOT the amount deducted from payroll over the long haul.

So if Joe made 35k in 1985 he paid in $1995 (5.7% of pay) instead of $2170 (todays rate of 6.2% of pay), a difference of $175.00 for the year.

The amount deducted from pay jumped to 6.06% in 1988 then to the current rate of 6.2% in 1990. No need to do the math because the early years at low pay make this argument a moot point. Your comparing less than $1000 dollars over the period from 1985 to 1988, to hundreds of thousands of dollars over 35 years of increasing income with minimal interest (the trust fund invests in treasury bonds).

So if Joe made 137k in 2020, he paid in $8537.00 that year. Do you see where I'm going here?

IMO, "a much lower rate" does not hold water when you do the math!
:beer
Going back to your original example and original math Joe did not pay that much into SS....."Example; Joe makes an average of $100k per year for 35 years, deducted from pay at 6.2% paid by employee and 6.2% employer. Joe paid $434,000 out of his pay over that time period. If he's paid weekly that's about $120.00 per week from him and $120.00 per week from his employer."

What does your actual SS account say that you paid over the 35 years averaging $70K over those years?
As far as I know, that info is available via the website, but if the average pay is $70k x 12.4% x 35 = $303,800 not including any interest, and I agree with delamer it's not strictly accurate.
https://www.merriam-webster.com/dictionary/abide
smitcat
Posts: 13300
Joined: Mon Nov 07, 2016 9:51 am

Re: Can you ignore social security in your calculations?

Post by smitcat »

retireIn2020 wrote: Wed Sep 01, 2021 12:19 pm
smitcat wrote: Wed Sep 01, 2021 9:07 am
retireIn2020 wrote: Tue Aug 31, 2021 11:24 pm
delamer wrote: Tue Aug 31, 2021 4:47 pm
retireIn2020 wrote: Tue Aug 31, 2021 4:42 pm

Did you mean .8% difference? How did you come up with 8%?
Divide 5.7 by 6.2. It’s about 8% less.
Ok, so that what you say is clear, we can agree the 8 percent difference is; The amount paid in to social security during the 1st 3 years from 1985 to 1988 and NOT the amount deducted from payroll over the long haul.

So if Joe made 35k in 1985 he paid in $1995 (5.7% of pay) instead of $2170 (todays rate of 6.2% of pay), a difference of $175.00 for the year.

The amount deducted from pay jumped to 6.06% in 1988 then to the current rate of 6.2% in 1990. No need to do the math because the early years at low pay make this argument a moot point. Your comparing less than $1000 dollars over the period from 1985 to 1988, to hundreds of thousands of dollars over 35 years of increasing income with minimal interest (the trust fund invests in treasury bonds).

So if Joe made 137k in 2020, he paid in $8537.00 that year. Do you see where I'm going here?

IMO, "a much lower rate" does not hold water when you do the math!
:beer
Going back to your original example and original math Joe did not pay that much into SS....."Example; Joe makes an average of $100k per year for 35 years, deducted from pay at 6.2% paid by employee and 6.2% employer. Joe paid $434,000 out of his pay over that time period. If he's paid weekly that's about $120.00 per week from him and $120.00 per week from his employer."

What does your actual SS account say that you paid over the 35 years averaging $70K over those years?
As far as I know, that info is available via the website, but if the average pay is $70k x 12.4% x 35 = $303,800 not including any interest, and I agree with delamer it's not strictly accurate.
Why not just look up the actual number then? - its real easy...
User avatar
retireIn2020
Posts: 745
Joined: Sat Jan 04, 2020 5:13 pm

Re: Can you ignore social security in your calculations?

Post by retireIn2020 »

smitcat wrote: Wed Sep 01, 2021 2:00 pm
retireIn2020 wrote: Wed Sep 01, 2021 12:19 pm
smitcat wrote: Wed Sep 01, 2021 9:07 am
retireIn2020 wrote: Tue Aug 31, 2021 11:24 pm
delamer wrote: Tue Aug 31, 2021 4:47 pm

Divide 5.7 by 6.2. It’s about 8% less.
Ok, so that what you say is clear, we can agree the 8 percent difference is; The amount paid in to social security during the 1st 3 years from 1985 to 1988 and NOT the amount deducted from payroll over the long haul.

So if Joe made 35k in 1985 he paid in $1995 (5.7% of pay) instead of $2170 (todays rate of 6.2% of pay), a difference of $175.00 for the year.

The amount deducted from pay jumped to 6.06% in 1988 then to the current rate of 6.2% in 1990. No need to do the math because the early years at low pay make this argument a moot point. Your comparing less than $1000 dollars over the period from 1985 to 1988, to hundreds of thousands of dollars over 35 years of increasing income with minimal interest (the trust fund invests in treasury bonds).

So if Joe made 137k in 2020, he paid in $8537.00 that year. Do you see where I'm going here?

IMO, "a much lower rate" does not hold water when you do the math!
:beer
Going back to your original example and original math Joe did not pay that much into SS....."Example; Joe makes an average of $100k per year for 35 years, deducted from pay at 6.2% paid by employee and 6.2% employer. Joe paid $434,000 out of his pay over that time period. If he's paid weekly that's about $120.00 per week from him and $120.00 per week from his employer."

What does your actual SS account say that you paid over the 35 years averaging $70K over those years?
As far as I know, that info is available via the website, but if the average pay is $70k x 12.4% x 35 = $303,800 not including any interest, and I agree with delamer it's not strictly accurate.
Why not just look up the actual number then? - its real easy...
Mine is more than I posted.
https://www.merriam-webster.com/dictionary/abide
LivingTheDream
Posts: 112
Joined: Sun Oct 18, 2020 10:30 am
Location: Savannah, GA

Re: Can you ignore social security in your calculations?

Post by LivingTheDream »

RJC wrote: Wed Sep 01, 2021 9:09 am Yes, we have ignored SS and a Federal Pension from our calculations. They are the extra cushion just in case (e.g.; long-term care).
... so you haven't really ignored them; you've just allocated their expected benefits to potential expenses (LTC & margin-of-error)? :)
secondopinion wrote: Mon Aug 30, 2021 4:22 pm
Can you ignore social security in your calculations?
Here is my take:

It has a factor of your age; the younger you are, the more allowance there is to ignore social security. This is because you are more likely not to have it (retire too early, SS fails, etc.), need it, or otherwise have it be a mute issue. As you get closer to the age to pull from social security, the more information you have to gauge decisions concerning it.

Essentially, I ignore social security for now; too much can happen in life to have any real confidence in it given 30+ years before I can take a dime.
... i agree that SS becomes more relevant (better able to make reasonable assumptions) as you get closer to retirement, but IMO any comprehensive retirement plan should consider BOTH expenses (with whatever inflation assumptions) & expected/likely/potential income streams (discounted based on personal assumptions). But discounting SS by 100% (ie, ignoring it) seems extreme, even for someone 30+ years out.
Living The Dream
MnD
Posts: 5194
Joined: Mon Jan 14, 2008 11:41 am

Re: Can you ignore social security in your calculations?

Post by MnD »

bberris wrote: Tue Aug 31, 2021 10:05 am If you want to lower your standard of living and leave more for your heirs, sure, you can ignore it.
Or work years longer than you would have otherwise - perhaps resulting in a very short retirement or no retirement at all.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: Can you ignore social security in your calculations?

Post by secondopinion »

LivingTheDream wrote: Fri Sep 03, 2021 1:08 am
RJC wrote: Wed Sep 01, 2021 9:09 am Yes, we have ignored SS and a Federal Pension from our calculations. They are the extra cushion just in case (e.g.; long-term care).
... so you haven't really ignored them; you've just allocated their expected benefits to potential expenses (LTC & margin-of-error)? :)
secondopinion wrote: Mon Aug 30, 2021 4:22 pm
Can you ignore social security in your calculations?
Here is my take:

It has a factor of your age; the younger you are, the more allowance there is to ignore social security. This is because you are more likely not to have it (retire too early, SS fails, etc.), need it, or otherwise have it be a mute issue. As you get closer to the age to pull from social security, the more information you have to gauge decisions concerning it.

Essentially, I ignore social security for now; too much can happen in life to have any real confidence in it given 30+ years before I can take a dime.
... i agree that SS becomes more relevant (better able to make reasonable assumptions) as you get closer to retirement, but IMO any comprehensive retirement plan should consider BOTH expenses (with whatever inflation assumptions) & expected/likely/potential income streams (discounted based on personal assumptions). But discounting SS by 100% (ie, ignoring it) seems extreme, even for someone 30+ years out.
When SS is further out, the volatility of potential is higher; therefore, the downside risk is more (say, the expected value of those results in the bottom 10% percentile). Expenses are also subject to this problem, but the downfall is in the sense of being very high. As a result, being modest in expenses now to fund retirement well is generally the best course of action, because we could run into both downfalls later on.

I am not saying everyone should ignore SS if they are 30+ year out; I ignore SS in my calculations because variability for me is far too high (and complicates calculations). The only concern I have with others readers is relying on SS too much as a potential reason to ill-fund for retirement when they are far from retirement.
Last edited by secondopinion on Fri Oct 15, 2021 5:32 pm, edited 1 time in total.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Charon
Posts: 631
Joined: Thu May 03, 2018 12:08 pm

Re: Can you ignore social security in your calculations?

Post by Charon »

Nobody should ignore Social Security, unless they won't receive it (not enough qualifying credits) or maybe if they retire in their 30s.

Some people on this site do say they're ignoring it, but what they're really doing is making a weird choice to be more conservative than reality. The reason this is weird is because Social Security is more reliable income than market returns, and just about nobody on here says "I'm ignoring all market returns for my calculations".

I understanding making conservative plans, to increase one's likelihood of success. I do not understand ignoring reality to be "more conservative" (as opposed to, say, choosing a 33X target instead of a 25X target).

I just ran a cFIREsim for me retiring at 50, and the spouse and I claiming at 62 and 70. Social Security took us from a 40% success rate to a 94% success rate for a 40-year retirement (with a certain starting portfolio and withdrawal strategy). That's with me being retired twenty years before claiming SS.

It really matters.

And that's for me. We have a lot of retirements savings. The vast, vast majority of the U.S. does not, and relies mostly or entirely on Social Security.

So it concerns me if anyone thinks it doesn't matter.
loukycpa
Posts: 735
Joined: Wed Aug 05, 2020 9:52 am

Re: Can you ignore social security in your calculations?

Post by loukycpa »

Charon wrote: Fri Sep 03, 2021 5:45 pm Nobody should ignore Social Security, unless they won't receive it (not enough qualifying credits) or maybe if they retire in their 30s.

Some people on this site do say they're ignoring it, but what they're really doing is making a weird choice to be more conservative than reality. The reason this is weird is because Social Security is more reliable income than market returns, and just about nobody on here says "I'm ignoring all market returns for my calculations".

I understanding making conservative plans, to increase one's likelihood of success. I do not understand ignoring reality to be "more conservative" (as opposed to, say, choosing a 33X target instead of a 25X target).

I just ran a cFIREsim for me retiring at 50, and the spouse and I claiming at 62 and 70. Social Security took us from a 40% success rate to a 94% success rate for a 40-year retirement (with a certain starting portfolio and withdrawal strategy). That's with me being retired twenty years before claiming SS.

It really matters.

And that's for me. We have a lot of retirements savings. The vast, vast majority of the U.S. does not, and relies mostly or entirely on Social Security.

So it concerns me if anyone thinks it doesn't matter.
I agree totally. Example. Married 48 year old with $1.5M saved for retirement who wants to spend $70k a year. That's 22X or 4.66% WD rate. Most would say not even close. Save another another $800k at least, then you will have 33X and 3% WD rate.

But if that same person includes the PV of their SS benefits at age 70 in their calculations, or even 75% of the PV if you want to assume future cuts, they are likely already there.

So ignore it and slave away another 5 to 10 years? I know my answer.

Many folks in the above situation operate like they need their portfolio to generate $70k for 40+ years. Why? Reality is you only need 22 years of $70k. After that you only need $20k from the portfolio after 70.
"The safe assumption for an investor is that over the next hundred years, the currency is going to zero." - Charlie Munger
rockstar
Posts: 6326
Joined: Mon Feb 03, 2020 5:51 pm

Re: Can you ignore social security in your calculations?

Post by rockstar »

loukycpa wrote: Thu Oct 14, 2021 3:52 pm
Charon wrote: Fri Sep 03, 2021 5:45 pm Nobody should ignore Social Security, unless they won't receive it (not enough qualifying credits) or maybe if they retire in their 30s.

Some people on this site do say they're ignoring it, but what they're really doing is making a weird choice to be more conservative than reality. The reason this is weird is because Social Security is more reliable income than market returns, and just about nobody on here says "I'm ignoring all market returns for my calculations".

I understanding making conservative plans, to increase one's likelihood of success. I do not understand ignoring reality to be "more conservative" (as opposed to, say, choosing a 33X target instead of a 25X target).

I just ran a cFIREsim for me retiring at 50, and the spouse and I claiming at 62 and 70. Social Security took us from a 40% success rate to a 94% success rate for a 40-year retirement (with a certain starting portfolio and withdrawal strategy). That's with me being retired twenty years before claiming SS.

It really matters.

And that's for me. We have a lot of retirements savings. The vast, vast majority of the U.S. does not, and relies mostly or entirely on Social Security.

So it concerns me if anyone thinks it doesn't matter.
I agree totally. Example. Married 48 year old with $1.5M saved for retirement who wants to spend $70k a year. That's 22X or 4.66% WD rate. Most would say not even close. Save another another $800k at least, then you will have 33X and 3% WD rate.

But if that same person includes the PV of their SS benefits at age 70 in their calculations, or even 75% of the PV if you want to assume future cuts, they are likely already there.

So ignore it and slave away another 5 to 10 years? I know my answer.

Many folks in the above situation operate like they need their portfolio to generate $70k for 40+ years. Why? Reality is you only need 22 years of $70k. After that you only need $20k from the portfolio after 70.
This got me thinking since I'm close to the numbers above. So I went to the SSA site and put in zero future earnings to see what my benefit would be at 70. It dropped from $4k to $3k. Those 35 years of earnings do have an impact. It's not that easy. Then, if I take another 25% off the $3k, the benefit shrinks even more.

I think, social security is nice to have, but you have to work for it. I'll have to slave away for another ten years.
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Can you ignore social security in your calculations?

Post by willthrill81 »

For a long time, I thought that I would ignore SS for future planning. Now, I very much plan on it, though I only plan on getting 75% of the benefit that they say I'll get.
The Sensible Steward
User avatar
AnnetteLouisan
Posts: 7261
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: Can you ignore social security in your calculations?

Post by AnnetteLouisan »

MnD wrote: Tue Aug 31, 2021 9:47 am Ignoring assets or income streams is just a lot of mental accounting.

In real life I know several people who are completely ignoring their very substantial investment portfolios.
They are receiving enough in SS, pension, rental income etc. to completely fund their retirement.
They don't really have any plans or utility for their portfolio other than to have it like a coin collection.
I‘m doing that but it‘s because its highly uncertain and I‘m trying to have conservative assumptions.
loukycpa
Posts: 735
Joined: Wed Aug 05, 2020 9:52 am

Re: Can you ignore social security in your calculations?

Post by loukycpa »

[/quote]

This got me thinking since I'm close to the numbers above. So I went to the SSA site and put in zero future earnings to see what my benefit would be at 70. It dropped from $4k to $3k. Those 35 years of earnings do have an impact. It's not that easy. Then, if I take another 25% off the $3k, the benefit shrinks even more.

I think, social security is nice to have, but you have to work for it. I'll have to slave away for another ten years.
[/quote]

Even dropping to $3k a month at age 70, you are still talking about a risk free inflation adjusted annuity worth $500k or so. More if there is a spousal benefit attached to it.

Chart nisiprius presented on the first tab showing the value of a max benefit was a helpful representation, but it is from 2015 and therefore out of date in terms of the value. Max benefit is quite a bit more in terms of PV in today's 2021 dollars.
"The safe assumption for an investor is that over the next hundred years, the currency is going to zero." - Charlie Munger
User avatar
JoeRetire
Posts: 15381
Joined: Tue Jan 16, 2018 1:44 pm

Re: Can you ignore social security in your calculations?

Post by JoeRetire »

rockstar wrote: Thu Oct 14, 2021 6:40 pm I think, social security is nice to have, but you have to work for it.
True of most nice things.
This isn't just my wallet. It's an organizer, a memory and an old friend.
smitcat
Posts: 13300
Joined: Mon Nov 07, 2016 9:51 am

Re: Can you ignore social security in your calculations?

Post by smitcat »

AnnetteLouisan wrote: Thu Oct 14, 2021 8:05 pm
MnD wrote: Tue Aug 31, 2021 9:47 am Ignoring assets or income streams is just a lot of mental accounting.

In real life I know several people who are completely ignoring their very substantial investment portfolios.
They are receiving enough in SS, pension, rental income etc. to completely fund their retirement.
They don't really have any plans or utility for their portfolio other than to have it like a coin collection.
I‘m doing that but it‘s because its highly uncertain and I‘m trying to have conservative assumptions.
It is not prudent to ignore any particualr aspect of your future planned retirement. Your SS is interdependent with many of your other pieces of the plan and ignoring it totally is not a good method to achieve the most resilient plan. I would suggest that you make your best plan utilizing the most likely future scenarios and then handicap that total plan as much as you like to reach a level that you believe to be 'conservative".
In that way your planning is still optimzed and any level of 'safety' can be easily altered and viewed quickly.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: Can you ignore social security in your calculations?

Post by secondopinion »

loukycpa wrote: Thu Oct 14, 2021 3:52 pm
Charon wrote: Fri Sep 03, 2021 5:45 pm Nobody should ignore Social Security, unless they won't receive it (not enough qualifying credits) or maybe if they retire in their 30s.

Some people on this site do say they're ignoring it, but what they're really doing is making a weird choice to be more conservative than reality. The reason this is weird is because Social Security is more reliable income than market returns, and just about nobody on here says "I'm ignoring all market returns for my calculations".

I understanding making conservative plans, to increase one's likelihood of success. I do not understand ignoring reality to be "more conservative" (as opposed to, say, choosing a 33X target instead of a 25X target).

I just ran a cFIREsim for me retiring at 50, and the spouse and I claiming at 62 and 70. Social Security took us from a 40% success rate to a 94% success rate for a 40-year retirement (with a certain starting portfolio and withdrawal strategy). That's with me being retired twenty years before claiming SS.

It really matters.

And that's for me. We have a lot of retirements savings. The vast, vast majority of the U.S. does not, and relies mostly or entirely on Social Security.

So it concerns me if anyone thinks it doesn't matter.
I agree totally. Example. Married 48 year old with $1.5M saved for retirement who wants to spend $70k a year. That's 22X or 4.66% WD rate. Most would say not even close. Save another another $800k at least, then you will have 33X and 3% WD rate.

But if that same person includes the PV of their SS benefits at age 70 in their calculations, or even 75% of the PV if you want to assume future cuts, they are likely already there.

So ignore it and slave away another 5 to 10 years? I know my answer.

Many folks in the above situation operate like they need their portfolio to generate $70k for 40+ years. Why? Reality is you only need 22 years of $70k. After that you only need $20k from the portfolio after 70.
Some of the people here are rather young and do not trust that SS will be there for them in the same way as it is now. I have to discount the SS benefits intensely to adjust for a 30+ year timeframe before I can even think about touching it. Ignoring makes it easier computationally as well as forces me to save more aside (being highly frugal, single, and higher paid makes this easy [not that I recommend being single or a tightwad]). Getting SS after all that time would probably be icing on the cake; maybe that will be my charitable spending money? I am far out, so maybe I will need SS if things go very bad during the 30+ years. No one can guess the future...

So, the answer depends on how close you are to claiming SS. If you are already there, assume most of it. If you are closer-ish, then assume some of it. If you are very far, then assume hardly any of it. I hate to plan my entire life and come short because I assumed something that I had zero control over (I can at least invest where I like).
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
jarjarM
Posts: 2511
Joined: Mon Jul 16, 2018 1:21 pm

Re: Can you ignore social security in your calculations?

Post by jarjarM »

secondopinion wrote: Fri Oct 15, 2021 5:52 pm
Some of the people here are rather young and do not trust that SS will be there for them in the same way as it is now. I have to discount the SS benefits intensely to adjust for a 30+ year timeframe before I can even think about touching it. Ignoring makes it easier computationally as well as forces me to save more aside (being highly frugal, single, and higher paid makes this easy [not that I recommend being single or a tightwad]). Getting SS after all that time would probably be icing on the cake; maybe that will be my charitable spending money? I am far out, so maybe I will need SS if things go very bad during the 30+ years. No one can guess the future...

So, the answer depends on how close you are to claiming SS. If you are already there, assume most of it. If you are closer-ish, then assume some of it. If you are very far, then assume hardly any of it. I hate to plan my entire life and come short because I assumed something that I had zero control over (I can at least invest where I like).
+1, we discount SS since we're still almost 30 years away from claiming it. Who's know what changes will be make by then. It's best to discount it entirely for now until we're much closer to FRA.
User avatar
JoeRetire
Posts: 15381
Joined: Tue Jan 16, 2018 1:44 pm

Re: Can you ignore social security in your calculations?

Post by JoeRetire »

jarjarM wrote: Fri Oct 15, 2021 6:10 pm +1, we discount SS since we're still almost 30 years away from claiming it. Who's know what changes will be make by then. It's best to discount it entirely for now until we're much closer to FRA.
Just curious about those who are that far out...

What do you use for a tax bracket assumption? Do you take a similar approach as with Social Security and assume your in-retirement tax bracket will be extremely high (say 80% or so) since nobody knows what changes will be made by then?

Do you plan that Roth money will continue to be tax free? Do you plan that RMDs will continue to operate as they do now? Do you assume you will still have access to Medicare insurance?

What other, different-than-today assumptions do you make?

In my planning, I always used current rules for everything, including Social Security. Maybe I have always been doing it wrong.
This isn't just my wallet. It's an organizer, a memory and an old friend.
danaht
Posts: 816
Joined: Sun Oct 18, 2015 11:28 am

Re: Can you ignore social security in your calculations?

Post by danaht »

I think it all depends on how old you are - if you can/should ignore it in your calculations. Based on past history - the law makers seem to use age as a way to change the rules regarding the program. My opinion is that 50 or older is probably a safer age to not have the rules changed at this point. Anyone below 50 may have to just watch for potential changes that may effect them like means testing, reduced benefits, etc.
Topic Author
wrongfunds
Posts: 3187
Joined: Tue Dec 21, 2010 2:55 pm

Re: Can you ignore social security in your calculations?

Post by wrongfunds »

JoeRetire wrote: Sat Oct 16, 2021 7:11 am
jarjarM wrote: Fri Oct 15, 2021 6:10 pm +1, we discount SS since we're still almost 30 years away from claiming it. Who's know what changes will be make by then. It's best to discount it entirely for now until we're much closer to FRA.
Just curious about those who are that far out...

What do you use for a tax bracket assumption? Do you take a similar approach as with Social Security and assume your in-retirement tax bracket will be extremely high (say 80% or so) since nobody knows what changes will be made by then?

Do you plan that Roth money will continue to be tax free? Do you plan that RMDs will continue to operate as they do now? Do you assume you will still have access to Medicare insurance?

What other, different-than-today assumptions do you make?

In my planning, I always used current rules for everything, including Social Security. Maybe I have always been doing it wrong.
You ask difficult questions! I just assume in 30 years, we will be all serving our Chinese or Indian overlords and that is why I am hoarding all my Indian Rupees under my mattress.
sailaway
Posts: 8215
Joined: Fri May 12, 2017 1:11 pm

Re: Can you ignore social security in your calculations?

Post by sailaway »

JoeRetire wrote: Sat Oct 16, 2021 7:11 am
jarjarM wrote: Fri Oct 15, 2021 6:10 pm +1, we discount SS since we're still almost 30 years away from claiming it. Who's know what changes will be make by then. It's best to discount it entirely for now until we're much closer to FRA.
Just curious about those who are that far out...

What do you use for a tax bracket assumption? Do you take a similar approach as with Social Security and assume your in-retirement tax bracket will be extremely high (say 80% or so) since nobody knows what changes will be made by then?

Do you plan that Roth money will continue to be tax free? Do you plan that RMDs will continue to operate as they do now? Do you assume you will still have access to Medicare insurance?

What other, different-than-today assumptions do you make?

In my planning, I always used current rules for everything, including Social Security. Maybe I have always been doing it wrong.
That is exactly it for me: I don't use SS in the calculations because that is a probable buffer against all the other assumptions going wrong.
JonFund
Posts: 197
Joined: Mon Feb 01, 2021 2:51 pm

Re: Can you ignore social security in your calculations?

Post by JonFund »

I don't consider social security (or pensions) in my asset allocation, however, I do factor them into my retirement budgeting calculations, from a cash-flow perspective. I plan on retiring in two years.

With that said, though I factor SS into my retirement budgeting, I keep in mind that at least a portion of that SS benefit may be reduced at some point.
5280Tim
Posts: 212
Joined: Wed Jul 26, 2017 9:33 pm

Re: Can you ignore social security in your calculations?

Post by 5280Tim »

Our plan is to fund retirement independent of SS with the goal of simply giving it away every year. I’d love to have 50x expenses to be able to give away more.
CletusCaddy
Posts: 2678
Joined: Sun Sep 12, 2021 4:23 am

Re: Can you ignore social security in your calculations?

Post by CletusCaddy »

secondopinion wrote: Fri Oct 15, 2021 5:52 pm Some of the people here are rather young and do not trust that SS will be there for them in the same way as it is now. I have to discount the SS benefits intensely to adjust for a 30+ year timeframe before I can even think about touching it. Ignoring makes it easier computationally as well as forces me to save more aside (being highly frugal, single, and higher paid makes this easy [not that I recommend being single or a tightwad]). Getting SS after all that time would probably be icing on the cake; maybe that will be my charitable spending money? I am far out, so maybe I will need SS if things go very bad during the 30+ years. No one can guess the future...

So, the answer depends on how close you are to claiming SS. If you are already there, assume most of it. If you are closer-ish, then assume some of it. If you are very far, then assume hardly any of it. I hate to plan my entire life and come short because I assumed something that I had zero control over (I can at least invest where I like).
Do you make any predictions about your financial future? Do you assume an average annual return for the next X years to when you will retire with your nest egg? Do you assume a spend rate? How accurate do you think those assumptions will turn out to be? If not very accurate, why do you do it?

Predicting the future is hard, on that we agree. But if you’re going to do it at all, isn’t it logically inconsistent to only make assumptions about certain elements and not others?
Post Reply