Does Total Savings include social security taxes?

[latebloomingonion]

Hi there,

First off I'm brand new to this site and a very late bloomer to saving for retirement so I appreciate all the help I can get!

I wanted to see how prepared I was for retirement so I started calculating my savings rate; but, then, I was stuck with a question: Do I include the taxes I pay for social security as a component of my total savings? 

This question stems from the article here: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

[Spork]

I get what you're saying...  but for me: No.

I categorize FICA as an expense, not as an investment.  For me this is just out of simplicity and "what I know."  I know I am paying the tax.  I am unsure of the expected return.  I tend to be overly conservative on all my estimates.  I did most of my calculations ignoring SS.   The amount I get will be an unbudgeted bonus.

[cheapass]

I assume it's lost money. By the time I reach that age, it's likely that the government will have spent it all on blowing up kids in the middle east, and corporate subsidies, and bank bailouts, and "free" college, and whatever else they dream up to blow money on.

[runningthroughFIRE]

I wouldn't consider SS taxes taken out to be part of your savings.  The amount of tax taken out is not the same as the amount you will recieve from the system once you start collecting SS, and you don't have ready access to those funds.  You could account for this as a pension that reduces the amount of money you need to save using the 4% rule if you'd like, but I personally don't.  I consider SS to be a safety margin, and plan for never actually getting anything from the system in the future.

[dude]

For me, yes.  It IS savings -- that money will be returned to you in the future (with interest), unless you wear a tinfoil hat.

[Choices]

I wouldn't consider SS taxes taken out to be part of your savings.  The amount of tax taken out is not the same as the amount you will recieve from the system once you start collecting SS, and you don't have ready access to those funds.  You could account for this as a pension that reduces the amount of money you need to save using the 4% rule if you'd like, but I personally don't.  I consider SS to be a safety margin, and plan for never actually getting anything from the system in the future.

+1

[Slee_stack]

For me, yes.  It IS savings -- that money will be returned to you in the future (with interest), unless you wear a tinfoil hat.

But it is something you have little to no control over.

Because of that, I consider it a straight tax.  Any tax is collected with the intent that it will be used to provide some return to society, and ultimately to the individual citizen.

SSI is earmarked to a particular use, but when and how much anyone receives is really open ended.

Will it disappear?  Probably not.

Will someone who is 20 or 30 today get as much a return as the 'SSI annual reports' predict today?  Also, probably not!

Its a safe wager that benefits will delay and/or reduce overall.  It then becomes  what % of the promised benefits folks are comfortable with assuming.  Some say 0%. 

I presume 50%.   Regardless, everyone has to make it to whatever benefit age is in place at the time.  If its 75 sometime in the future, I hope people don't get screwed by picking 67 for their planning calculations today.

[Spork]

For me, yes.  It IS savings -- that money will be returned to you in the future (with interest), unless you wear a tinfoil hat.

But it is something you have little to no control over.

Because of that, I consider it a straight tax.  Any tax is collected with the intent that it will be used to provide some return to society, and ultimately to the individual citizen.

SSI is earmarked to a particular use, but when and how much anyone receives is really open ended.

Will it disappear?  Probably not.

Will someone who is 20 or 30 today get as much a return as the 'SSI annual reports' predict today?  Also, probably not!

Its a safe wager that benefits will delay and/or reduce overall.  It then becomes  what % of the promised benefits folks are comfortable with assuming.  Some say 0%. 

I presume 50%.   Regardless, everyone has to make it to whatever benefit age is in place at the time.  If its 75 sometime in the future, I hope people don't get screwed by picking 67 for their planning calculations today.

Just to add to that:  Another reason I don't include it is that FIRE makes it even more complex. 

If I recall... they do some complicated "earnings averaged over 35 years" formula.  If you work less than 35, your benefit will be reduced by quite a bit.

So... I assume $0 because it is simple and because it is conservative.

[runningthroughFIRE]

It's not terribly complex, actually.  Essentially, take your top 35 years of SS earnings (fill in years not worked with zero) and average them.  Then divide by 12 to get an average month.  That amount gets run through a three bracket system similar to your federal income tax, except instead of determining how much you pay in taxes, it determines your benefits.  Working fewer than 35 years actually gives you more bang for your buck, because the system pays out a higher percentage in the lower brackets than it does in the higher two brackets.

The tricky part comes when you're trying to determine what your future SS earnings will be in every year to find that average number.

[Bucksandreds]

It's not terribly complex, actually.  Essentially, take your top 35 years of SS earnings (fill in years not worked with zero) and average them.  Then divide by 12 to get an average month.  That amount gets run through a three bracket system similar to your federal income tax, except instead of determining how much you pay in taxes, it determines your benefits.  Working fewer than 35 years actually gives you more bang for your buck, because the system pays out a higher percentage in the lower brackets than it does in the higher two brackets.

The tricky part comes when you're trying to determine what your future SS earnings will be in every year to find that average number.

My parents are taking social security at 67 and told me that it will pretty much cover their expenses minus travel.  They managed to save 7 figures but, as of now, they plan to draw down less than 1%. Things can change quickly though.  I would consider Social Security to cover between 50% and 100% of a frugal persons expenses.  It is foolish to think that you won't have it and foolish to think that there wont be changes (higher retirement age, higher level of income taxed.)  Please do not be one of the fools who thinks that social security disappears when the trust fund runs dry.

[Zamboni]

I tend to view it as money out of my pocket and into my parents' pockets, or as a back up plan in the case of permanent disability. Yes, I will likely see some of it, but I don't count on it for myself and it's not part of my overall savings calculation.

[runningthroughFIRE]

It's not terribly complex, actually.  Essentially, take your top 35 years of SS earnings (fill in years not worked with zero) and average them.  Then divide by 12 to get an average month.  That amount gets run through a three bracket system similar to your federal income tax, except instead of determining how much you pay in taxes, it determines your benefits.  Working fewer than 35 years actually gives you more bang for your buck, because the system pays out a higher percentage in the lower brackets than it does in the higher two brackets.

The tricky part comes when you're trying to determine what your future SS earnings will be in every year to find that average number.

My parents are taking social security at 67 and told me that it will pretty much cover their expenses minus travel.  They managed to save 7 figures but, as of now, they plan to draw down less than 1%. Things can change quickly though.  I would consider Social Security to cover between 50% and 100% of a frugal persons expenses.  It is foolish to think that you won't have it and foolish to think that there wont be changes (higher retirement age, higher level of income taxed.)  Please do not be one of the fools who thinks that social security disappears when the trust fund runs dry.

The reason I don't factor in SS isn't because I don't think I'll get anything at all from it.  The reason is that I am planning for a potentially 60-70 year retirement, and I won't be able to take anything from SS until almost 30 years into that retirement.  My great grandmother just turned 100 last month and doesn't even use a cane to get around, so I could very well live a long life. 

I doubt that SS will be taken away entirely, and I have my reservations about how the system currently operates, but 40 years is too long for me to reliably predict anything, so I don't factor it in.  I was just demonstrating that the calculation itself is relatively simple (even if the assumptions going into it aren't always).

[Yaeger]

I don't consider Social Security as part of my total savings, I just think of it as just another tax. Also, I'd very much like to have Social Security phased out by the time I'm ready to collects so I tend to plan for my retirement very conservatively by minimizing my dependence on fickle voters/taxpayers.