[Emeline]

Hi there, I am wondering if I could get some help validate some assumptions.

I know many suggest not to account for social security into their numbers, but for those who are maybe on a path to burnout, or who are perhaps a bit older….

taking social security into your RE calculations may be the way to go.

– If your target number in today’s dollar is $40k/year, i.e. $1M (for the sake of using an example),

– and lets assume for simplicity that the social security administration tells you will get $15k/year at 62 if you stopped contributing today.

– you are 52, 10 years away from the earliest ss age
– Can we assume that you should receive c. $20k/Year from ss at age 62 if we assume 3% inflation

(the $15k the administration tells you will get will become $20k 10 years from now, with inflation).

$20k x 25 = $500k. Therefore, the portion social security will bring is the equivalent of having a $500k investment portfolio

– From there, you need to have a portfolio that will cover the remaining expenses which are $25k/Year in today’s dollars ($40k minus $15k).

That represents c. $33k 10 years from now (if we use the same 3% inflation). $33k x 25 = $839k.

Therefore, you should target to have a $839k portfolio, if you want to retire and be able to withdraw $33k.

The remaining portion of your expenses will be covered by ss.

– And yes, one would need to account for taxes, and maybe account only for 75% of the ss amount if you want to be conservative.

But to keep this “simple”, does all of the above seems like a correct way to think about it?

The main item being that if you need $40k/Year (in today’s dollars), you may not need to have a $1M portfolio if you can account for what ss will cover.

Thanks for your input!

[Jeff]

I’m 52 and use 75% of today’s dollar estimate after I put in that I won’t make a penny going forward.

[Lynn]

I am there, retired at 59, drawing SS at 62. I rely mostly on my SS for everyday expenditures.

I have a rental, and draw very little from my portfolio.

I guess it depends on your lifestyle how much you need, but at this point in my life, I don’t really worry about money.

I just hope to live long enough and enjoy the rest of my life.

[Bill]

You are hearing this mostly from people who are in their 20s and 30s. If you are retiring at 62, sure, count your SS.

I’d be a little careful with the SS growth estimates though.

SS isn’t going to end, but there is a significant shortfall in funding.

One of the commonly proposed fixes is to use a lower inflation number for future growth.

[Hamilton]

The COLA for SS historically has not gone up by 3%. It is more like 1.3% when I average it over the past 30 years.

[Scott]

since your 4% safe withdrawal today is inflation adjusted (that was the Bengen sssumption) and SS is adjusted (policy risks of course) I think you can say that in today’s dollars you need $25k per annum from the portfolio.

Adding 3% annual adjustment to all the numbers for inflation doesn’t change anything.

Given the value of delayed claiming credits I would also quite seriously consider delaying SS.

In your example delaying SS to 70 would mean claiming over $42.5k at age 70 and you’d not need the portfolio at all, so it could be used to fund a delay bridge from when you retire until 70.

I don’t think at your age you are at serious risk of benefit cuts.

Yes COLA shifting to Chained CPI from CPI-W and/or having 100% of the benefit taxed are risks.

[Leah]

“lets assume for simplicity that the social security administration tells you will get $15k/year at 62 if you stopped contributing today”
Have you done your own AIME and PIA calculations based on stopping contributing today?

Because your social security statement is based on a different assumption.

“These personalized estimates are based on your earnings to date and assume you continue to earn $$$ per year until you start your benefits.”

[Randy]

I didn’t scrutinize your number but I agree to factor in any recurrent payments like SS into an FI goal.

I would use a range estimate though because your income may change and other variables.

I didn’t pay a ton of attention to future payouts of 2 SS plus 2 pension streams.

Now retired and see what they are and I could have saved less but zero regrets.

[Tom]

I think you’ve got it right, especially if you’re 800k is in a Roth. Regardless, if you’re withdrawal rate is that low I don’t think rmd is a huge issue and you’re tax bracket will be low.

Did you factor in health insurance though?

[Ellen]

Thats how I’ve been thinking about it too. I figure on 78% of the current estimate to be safe, and I also estimate the COLA increases between now and when I start to collect (3% a year) and zero additional income (retired at 62, planning to collect at 67 or so), to at least have a rough idea of what the minimum it might be.

Then multiply by 25 (which also doesn’t take into account the annual inflation increases from age 67 on, so it’s also probably too low).

Then I subtract that lower estimate from my FI number, like you said. It gives a rough idea anyway.

[Tony]

Who are these ‘many’, and do they realize that 60% of retirement age people live paycheck to paycheck?

It would be an absolute disaster to pull the rug out from under 60 year olds.

These folks reliably vote and also tend to lean red, so if Republicans try to end the program or severely cut benefits, I imagine retirees will start batting for the other team to protect their interests.

[Author]

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