Guaranteed Government

[REatc]

Should I consider my government pension and social security benefits part of my FI plan? I have before and still do now consider it as extra money if it is there in 20 years to my investments that I have now. My FI plan doesn’t include the pension or SS, should I?
I’m pretty sure a government pension is as guaranteed thing as you can get right? Social security is a different debate but I think it would still be around, or at least I would get a lump sum payout. It wouldn’t just be a tax that is gone forever right?
I’m an ATC that can retire after 25 years of service with full benefits immediately, which include max social security, pension, and health benefits. The pension and social security provide more than I spend now, all other investments are just extra. Most of the people I work with are relying on their pension and SS to fund their retirement, I’ve always thought that was irresponsible until now. The likey hood of both disappearing is extremely small right? If I keep saving and investing the way I am now, by the time I retire, not only does the pension and SS cover my lifestyle but I’d have 3M in other investments. Should I stop worrying too much about my investments and have a more CoastFI mindset?

[ender]

It's pretty hard for me to imagine scenarios where SS goes to $0/year.

[MrGreen]

It's pretty hard for me to imagine scenarios where SS goes to $0/year.

Agreed. This would put the majority of people over 65 in the streets. Never gonna happen.

[seattlecyclone]

It's pretty hard for me to imagine scenarios where SS goes to $0/year.

Agreed. This would put the majority of people over 65 in the streets. Never gonna happen.

Right. Under current law there's this "trust fund" of IOUs from one side of the government to the other, that have been built up when payroll tax receipts have exceeded social security benefits. Those IOUs will be redeemed for as long as they last, and from then on the social security benefits will be strictly limited to the amount of tax collected that year. Last I read, the estimate was that when we get to that point the benefits will be somewhere in the ballpark of 75% of what has been promised. That's if Congress does nothing. It's very hard for me to imagine Congress changing the law to use something less than 100% of the payroll tax collection for social security benefits, leaving retirees worse off than what current law promises.

[mcneally]

I heard someone say that if you're going to assume zero from Social Security, it would be unreasonable to not also assume zero from Medicare, and that you'll need $30k per person per year out of pocket for old age health insurance.

[rmorris50]

Much more things to worry about than this swan event.

I actually will probably delay taking my pension and social security as long as possible and live off investments in the meantime. Sort of a longevity insurance play. Unless my health deteriorates and I don’t expect to live well into my 80s.


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[Dibbels81]

Spend some time on FireCalc and you'll be surprised, assuming you're relatively young, that SS and pensions won't make a huge difference with your success rate. It seems that if your stash is in good shape come typical retirement time, you'll be golden. Treat yourself to a boat if that's the case.

[NorthernIkigai]

Spend some time on FireCalc and you'll be surprised, assuming you're relatively young, that SS and pensions won't make a huge difference with your success rate.

This is what I have figured. According to the current rules where I live, I would be able to claim my government pension (similar to US Social Security) at the earliest, at a cut rate, starting in 2044. (The normal age is a few years later, and the amount is only a bit higher.) My work history until now means I have something like 830 € per month waiting for me there. If I keep working for another 10 years, the monthly amount  will have risen to 1,600 €, and if I keep working all the way to 2044 it'll be 2,700 €.

To retire early, I'll need a stash big enough to get me safely through the years leading up to 2044 anyway. And a safe enough stash will mean that the difference between receiving an additional 1 or 2k per month starting in my late sixties won't be relevant.

(Not to mention that the rules, and the taxes on these payments, can and will change many times before 2044...)

[rmorris50]

Spend some time on FireCalc and you'll be surprised, assuming you're relatively young, that SS and pensions won't make a huge difference with your success rate. It seems that if your stash is in good shape come typical retirement time, you'll be golden. Treat yourself to a boat if that's the case.

I think it can make a difference in stabilizing the volatility of resulting outcomes.


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[use2betrix]

It's pretty hard for me to imagine scenarios where SS goes to $0/year.

For those with a short working career, it’s important to use the S.S. Calculator to estimate your earnings… Retiring in your mid 30’s can easily mean you only get 1/2-1/3 of the social security income you could otherwise get from working a full career.

[jim555]

Don't fall for the false info put out by the party that wants to destroy Social Security.  Remember the ACA was "failing" and would "collapse" on its own and had to be gotten rid of.  Turns out it was all lies.  Just like the lies the Social Security won't pay out its obligations.

[habanero]

I like that my SS (I live in Europe) is a meaningful amount of money and a guaranteed cashflow asjusted to inflation.  The effect from minimum SS and maximum SS for me isn't that big so it doesn't really matter how many years I use to build it (i.e. work).

I have not done the maths on it myself, but I think outcome would be rather different in a world with some inflation, but almost zero yield on bonds like now. That should make inflation-adjusted SS more valuable than various calculators based on historical simulations. At least I think so. Then again, noone knows what interest rates or inflation will be in a few decades.

Under current rules I would be looking at something like 1/3 or annual spending via SS at the minimum rate. I think that's pretty valuable, but I don't includ it in my target number but more as a safety feature in the total.

[Boll weevil]

My thought is your pension is pretty safe. They may make some changes to how they accruals work going forward, but anything you’ve already vested will probably be retained.

Social security, on the other hand, may be an issue. They’ve been tinkering with the ages at which you can draw benefits, and I think they’ll end up going to some sort of means test. Most of the tinkering done is by birth year (as in people born in year x have one set of rules, but people born in year x+1 have a different set), so your age will dictate which set of rules you end up with.

[terran]

I agree with those that say social security is unlikely to go away. But I also don't really include it in my calculations because 1) the amount of money I need to save to support my spending from 40 years old plus or minus until when I can take social security at 62 or probably will at 70 just isn't that different from the amount I'd need to last pretty much indefinitely and 2) with shortened working careers we won't get a huge social security benefit (although still significant). It's nice to know it's there as something to fall back on if sequence of returns takes a bite out of our savings in the early years and we end up depleting more than we'd like to. If we were retiring at closer to 50-55 or later I'd probably put more emphasis on social security. 

[Eco_eco]

When we were projecting out our long term plan we treated state provided superannuation as a nice to have safety net.

My thinking has always been that the risks around superannuation are all political (and therefore out of our control). The downside risks are:
- the government might simply declare superannuation unaffordable and stop paying (unlikely since there will always be people who haven’t been able to prepare for their older years)
- the government could change the criteria as to who can get it - for example they might start means testing it, and then we wouldn’t qualify for it unless we lost all our money and were nearly broke
- the government might not keep up with inflation, making the true value of the state pension quite low by the time we are eligible for it
- the government might put up the age that it can be accessed.

Working in the idea that ‘the government can always take away what it gives’ we decided state provided super could allow us to accept a slightly lower margin of error in our monte carlo analysis, and therefore a slightly lower FIRE number, but that was it.

When we are 65 and start to receive it we will probably donate it, but it’s nice to know it’s there if something goes horribly horribly wrong.


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[ender]

It's pretty hard for me to imagine scenarios where SS goes to $0/year.

For those with a short working career, it’s important to use the S.S. Calculator to estimate your earnings… Retiring in your mid 30’s can easily mean you only get 1/2-1/3 of the social security income you could otherwise get from working a full career.

That's very different than what OP is concerned with which is whether to even calculate SS into their planning at all (aka $0).

If you are planning SS into calculations, I sort of assume that folks are calculating it correctly since ssa.gov makes it so easy.

[Rosy]

There are no guarantees in life besides guaranteed and government is an oxymoron:).
Governments can and will change the rules/laws frequently so it isn't a bad idea to plan retirement sans SS.
The chances of it disappearing are rather low but depending on who is in power and their political agenda it is entirely possible that age restrictions and other shenanigans will reduce, delay, and possibly affect your retirement.

My mother (in Germany) retired with an SS equivalent of $1600+ - eight years later she only received $800+. I was shocked.
First, they changed the law regarding spouses' income then they enacted a new law requiring all pensioners to pay their own medical.

I'm retired in the states and it ticks me off every time the powers-to-be decide on zero COLA adjustment or keep it so low it barely offsets the increase in Medicare Insurance.
Thanks for the five bucks increase Mr. President - this is a true statement:
One year SS increased enough to cover the Medicare Ins. Premium Increase plus $5.
Then came two years of no increase at all, while rent and groceries shot up.

One wonders if any senator cares how financially devastating everyday life becomes for people who can no longer hold a job or are forced to pay way too much for their meds. Senior nomads living in their cars because they can't afford rent ring a bell? Yes, that is a thing in these United States, shameful.
The prior administration lowered the living standards of the old and poor - deliberately.

Thankfully I have other income and life is good but I find it extremely vexing. So I decided to do what I can to help the seniors in my community and I sign every damn petition AARP comes up with to combat the erosion of SS payments. It's the best a powerless little sheep can do.
OK - off my soapbox.

Financial Independence is the key to freedom!
How-when-why or even if you retire then becomes meaningless - you can stop worrying.     

[rmorris50]

I think we can tend to forget our ability to adapt. With $3m NW you still have options should even if Social security went away. Can cut expense, move and downsize, get a reverse mortgage, get a part time job. Plus with $3M you’ll see potential financial ruining well well well in advance.


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[wenchsenior]

It's pretty hard for me to imagine scenarios where SS goes to $0/year.

Agreed. This would put the majority of people over 65 in the streets. Never gonna happen.

Absolutely. If you want to be conservative, you can estimate your SS benefits at about 70-75% of what is currently promised (this is what I do).

[wenchsenior]

There are no guarantees in life besides guaranteed and government is an oxymoron:).
Governments can and will change the rules/laws frequently so it isn't a bad idea to plan retirement sans SS.
The chances of it disappearing are rather low but depending on who is in power and their political agenda it is entirely possible that age restrictions and other shenanigans will reduce, delay, and possibly affect your retirement.

My mother (in Germany) retired with an SS equivalent of $1600+ - eight years later she only received $800+. I was shocked.
First, they changed the law regarding spouses' income then they enacted a new law requiring all pensioners to pay their own medical.

I'm retired in the states and it ticks me off every time the powers-to-be decide on zero COLA adjustment or keep it so low it barely offsets the increase in Medicare Insurance.
Thanks for the five bucks increase Mr. President - this is a true statement:
One year SS increased enough to cover the Medicare Ins. Premium Increase plus $5.
Then came two years of no increase at all, while rent and groceries shot up.

One wonders if any senator cares how financially devastating everyday life becomes for people who can no longer hold a job or are forced to pay way too much for their meds. Senior nomads living in their cars because they can't afford rent ring a bell? Yes, that is a thing in these United States, shameful.
The prior administration lowered the living standards of the old and poor - deliberately.

Thankfully I have other income and life is good but I find it extremely vexing. So I decided to do what I can to help the seniors in my community and I sign every damn petition AARP comes up with to combat the erosion of SS payments. It's the best a powerless little sheep can do.
OK - off my soapbox.

Financial Independence is the key to freedom!
How-when-why or even if you retire then becomes meaningless - you can stop worrying.     

The president doesn't set COLA for SS. It's set automatically based on a formula established by Congress in 1975. So blame them.

[frugal_c]

If you look at what happens in other countries facing severe financial crisis, pensions will get cut but I haven't heard of them going to 0. It could happen but not likely at all.

I read that they can balance social security for 75 years by reducing payouts by 15% or by increasing payroll deductions by a couple percentage points, so 1% more to employee and employer. They could also bump the standard age by a few years.  I assume it will be some combination of the above. 

If you do end up in a situation where there is a severe cut I think it's very likely your investments are down huge as well.  In this typ of scenario you should see a reduction in prices to partially mitigate the cut. 

I actually think my pension is safer than the 4% rule as long as you handicap it a bit.  Ideally you can live off your investments or your pension and are double covered but I do think it's not necessary.

[PDXTabs]

It's pretty hard for me to imagine scenarios where SS goes to $0/year.

Agreed. This would put the majority of people over 65 in the streets. Never gonna happen.

I agree. But it is going to be in US dollars. So if something were to happen to the USD you might have a hard time retiring abroad.

[PDXTabs]

i expect a whopping 0€ from my government pension. The system is built on a false assumption of infinite economic and demographic growth. Pension age has been creeping up and we're still getting close to supporting one pension per worker.

I just hope it all goes away before i retire because it would be inconvenient to migrate in order to avoid paying into the pyramid scheme.

I disagree. Even if you get to the point where one worker is supporting one retiree that makes it neither a pyramid scheme nor a 0€ pension.

[Loren Ver]

Back when I was running the numbers for DH and I, I would do it with $0 from SS, what I estimated our SS would be, and then a 75%ish of that estimated SS payout.  This was before the SS site made it so easy to put in zeros for all additional earning years. 

This let me see that taking SS into account didn't change the amount we needed to retire nor the time until retirement appreciably.  There was only some minor movement to the percent success rate.  So we decided to treat it as a fun surprise for when we hit our old age.

YMMV, especially if you are working longer, or bring in bigger money.

[GodlessCommie]

It's pretty hard for me to imagine scenarios where SS goes to $0/year.

Agreed. This would put the majority of people over 65 in the streets. Never gonna happen.

It is possible to keep current retirees as they are, but make benefits progressively less generous for the new ones.

[ericrugiero]

It is possible to keep current retirees as they are, but make benefits progressively less generous for the new ones.

Yes it is.  My employer did this with my pension plan.  New employees are not part of the pension plan, they get an additional 401K match. 
However, I can't see the government doing this because they need people contributing to SS in order to pay for people who are currently retired.  Telling current workers they have to continue to contribute but will get nothing back is a good way to lose an election.  Currently, SS is a bad investment but at least we expect to get something back. 


Side note: I would rather have the extra 401K match and invest it myself like the new employees get.  They told me I was not allowed to switch to the "new plan".  The current pension calculates out to something like 4.5-5% growth per year and I think it's likely the stock market will do better (I asked about 2 years ago so there would have been a pretty good increase since then). 

[Chris Pascale]

I'm under 40 and my wife and I have VA pensions that we include in our future planning. The other pensions are federal and NY State pensions, as well as 2 Thrift Savings Plans, a Roth, and a 403(b). I also consider Social Security in the planning if we live to 70+.

Part of the reason we do this is because of the going concern principle, which is where you operate as though the entities you're dealing with are going to continue operating.

I also used this reasoning in buying some stock in RMCF that never failed to pay its dividend. It announced that dividends weren't coming right after I bought. On the bright side, if dividends ever come back, whoever buys since then may make a nice gain.

[GodlessCommie]

Yes it is.  My employer did this with my pension plan.  New employees are not part of the pension plan, they get an additional 401K match. 
However, I can't see the government doing this because they need people contributing to SS in order to pay for people who are currently retired.  Telling current workers they have to continue to contribute but will get nothing back is a good way to lose an election.  Currently, SS is a bad investment but at least we expect to get something back. 

Risking the relegation to "Other" - you seem to assume that the government is always interested in competent governing, which is most certainly not the case. There is a tendency to break things, claim that they are broken, and replace them with something better fitting governing party's preferences. Social Security has been a target of this scheme, survived, but it can happen again.

Social Security's goals include providing funds in retirement for people who wouldn't otherwise able to retire. There is a redistribution component, like in most (if not all) national pension schemes. So yes, for higher-earning individuals, it's a relative loss. It is also the price of civilization, like other taxes. Most people here are riding high and feel invincible, which is a good attitude. No one is invincible, though. I have a friend who fell victim to opioid addiction. It started with a prescription. It took her a long time to become a productive member of a society again. It wouldn't happen without a safety net, as meager as it is. It could have easily being me - I was given an opioid pill to try when I complained about back pain. It was pure luck that the pain was not severe enough to get a second and a third.   

[DeniseNJ]

Just a note: SS in the US is not just a retirement fund.  It's also disability insurance, and life insurance for minor children and the spouse caring for them.

To the OP, the sooner you plan to retire, the less SS matters, bc 1. you'll have to fund your life before you are 62, and 2. your benefits will not be high if you don't work for long.

[frugal_c]

i expect a whopping 0€ from my government pension. The system is built on a false assumption of infinite economic and demographic growth. Pension age has been creeping up and we're still getting close to supporting one pension per worker.

I just hope it all goes away before i retire because it would be inconvenient to migrate in order to avoid paying into the pyramid scheme.

I disagree. Even if you get to the point where one worker is supporting one retiree that makes it neither a pyramid scheme nor a 0€ pension.

They are not literally pyramid schemes but they have some parallels. In Canada CPP has gone from 1.8% of the paycheck to 5.25%.  Each generation is under paying based on the increases.  If it had been properly planned for and balanced their would not have been a tripling of contributions.

[Michael in ABQ]

Federal benefits I would count to stay mostly intact. State/local benefits/pensions - good luck. If the state runs out of money the pension plans can file all the lawsuits they want, you can't get blood from a stone. The federal government can always just print more money. So inflation may drastically outstrip those COLA increases, and it may end up being some minor (or major) changes - but I don't think it's reasonable to assume there will be $0 from Social Security or Medicare even 50 years down the road. It may be 80% of what is projected now, or even 50%, but as long as old people vote, it won't go to 0.

[frugal_c]

I am in not in favor of it but state and most municipal pensions are somewhat safe because they can just raise taxes.  Perhaps I am naive but that's how I see it playing out.

As long as the economy grows faster than inflation SS should be less of a problem going forward. Even 2% real GDP growth is about a triple economic growth over 50 years.  Not sure who exactly pays for it  but over time even if it's underfunded it should be less of an issue to cover it when you have any hat type of economic growth.