Recently Mitt Romney made headlines by suggesting he’d be in favor of cutting Social Security benefits for younger generations. His comments reminded me why I don’t include Social Security payments in my retirement planning. If I count on that income in my projections and save less money as a result, my retirement could be delayed if the program becomes insolvent.
However, everyone’s risk tolerance is different. You may see no problem including Social Security in your calculations. You could retire on less money or get a part-time job if the payments are ever reduced. To help you decide what’s right for you, here are the reasons I’m not including Social Security in my retirement plans.
Social Security May Become Insolvent
Social Security had a reserve of $2.9 trillion at the end of 2020. But experts say that reserve could run out as soon as 2035 because retirees are living longer and collecting more benefits.
However, keep in mind that Social Security is mainly funded by payroll taxes. So if the reserves are depleted, checks will still get sent to retirees, but they could be reduced by 20%. If this happens, it will no doubt have a devastating effect on retirees who rely on the program.
Politicians could do other things to shore up the program besides cutting benefits, such as raising the amount of income that’s subject to payroll taxes. The maximum for 2022 is $147,000, so there’s a lot of room to increase it. They could also hike the social security tax rate, which is currently 6.2% for employees, or up the minimum retirement age.
Could Social Security End?
Since Social Security is already having funding problems, I expect things to get worse before I retire in a few decades, especially since the birth rate is declining. Fewer children mean fewer workers. So the amount collected from payroll taxes may decrease in the future, which could affect benefits.
Maybe this is a pessimistic outlook, but I’d rather base my retirement plans on the worst-case scenario. Experts say it’s highly unlikely that Social Security will end, but I’m too conservative and risk-averse to include it in my calculations.
If I end up getting full or reduced benefits, that extra income will be icing on the cake. But if something goes wrong with the program, I won’t have to adjust my retirement plans last minute.
Should You Include Social Security in Your Retirement Plans?
Most financial experts agree that it’s not a bad idea to leave Social Security out of your retirement plans if you can afford to. Saving more money and making additional contributions to your retirement accounts is never a bad idea. But if you’re closer to retirement age or less risk-averse than I am, it may make sense to include Social Security in your plans. After all, experts say the program will most likely be around even when millennials retire.
You can use Social Security’s retirement estimator to find out your potential monthly benefit based on your earnings and desired retirement age. If you want to be more conservative, experts say you can decrease your estimated check by 20% to 50%. That way you’re accounting for the fact that benefits could be reduced in the future.
Are you including Social Security payments in your retirement calculations? Do you think the program will remain solvent? Share your thoughts in the comments section below!
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Vicky Monroe is a freelance personal finance and lifestyle writer. When she’s not busy writing about her favorite money saving hacks or tinkering with her budget spreadsheets, she likes to travel, garden, and cook healthy vegetarian meals.
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