Christine Benz) "It's
funny, because when we run cash flow projections for our clients, a lot
of them will say, 'Oh, you know, I don't know. Social Security is so
shaky. Let's not include it.' So, we'll run one [projection] without it
and one with it. It's a big difference. And when they see it, they say,
'Well, yes, OK, let's keep that in.'"
Financial planner Mark Balasa got a chuckle from the crowd when he made that statement at Morningstar.com's retirement income seminar in January 2011,
no doubt because at least some audience members saw a bit of themselves
in it. Because it provides an inflation-adjusted income stream that
will last through a retiree's life, Social Security is an incredibly
powerful benefit. At the same time, deficit worries have led some to
question whether the program will continue on its current course:
Proposals to reform Social Security have included raising the
eligibility age, tweaking the inflation adjustment, or incorporating
means-testing so that wealthy beneficiaries would receive a scaled-back
I recently asked Morningstar.com Discuss forum participants to share how Social Security had factored into their own retirement planning. Posting in the Investing During Retirement forum, I asked them if they were counting on a full benefit or were planning on scaled-back level of income from the program.
A robust conversation ensued, with clear divisions based on life
stage. While retired or soon-to-retire posters generally had a moderate
or high level of confidence they'd receive their full benefits, younger
investors were more skeptical that the program would be viable by the
time they got around to retiring. Some posters also shared what role
Social Security had played in their retirement plans. It has been an
essential component of some retirees' income streams, while others put
their Social Security benefits in the category of "nice to have."
To read the complete thread or share the role of Social Security in your own retirement planning process, click here.
'I Think Social Security Benefits Are Fairly Sure'
A small contingent of posters who are retired or close to
retiring have not factored Social Security benefits into their planning
process. Chief K, while not expecting the imminent dissolution
of Social Security, was a rare poster who's currently eligible for
Social Security but is leaving open the possibility that his benefits
could be curtailed in retirement. He wrote, "I expect Social Security
benefit payments to continue in something close to the existing form.
However, I have decided to discount the amount of estimated benefits for
me (I'm over 65) by 15% because, I am just guessing about the future
and I always prefer any financial surprises to be 'better' rather than
for them to be 'worse.'"
More commonly, however, retirees who posted are fully expecting to receive their full benefits during their lifetimes.
Bubbygator was among the first retirees to weigh in,
speaking for many when he said he's counting on his full benefit. He
went on to argue that altering the system in a way that would affect
current retirees' incomes wouldn't be politically viable. "I believe
that if any changes are made to the Social Security system, such changes
will not be retroactive to people who have already qualified and are
currently receiving benefits. One reason I believe this is that the
existing retiree base would raise hell politically against any
Racqueteer concurred that those who are already taking
benefits are unlikely to see their benefits cut. Thus, he wrote, "I took
Social Security at 62, and I think by doing that, I made it more likely
that my benefits will be grandfathered in regardless of what happens in
FidlStix agreed. "For all the heat and light being generated
over the demise of Social Security and Medicare, I think Social
Security benefits are fairly sure for those of us 55 or older. I expect
my wife and I will derive about 40% of our retirement expenses from our
Social Security benefits." He went on to note that major market shocks
are a bigger concern. "Although I'm looking to investment income for a
big portion our retirement, I feel very vulnerable to Black Swan
attacks." ["Black Swan" refers to Nicholas Taleb's book of the same
name, which argued that market participants tend to underestimate the
probability of extreme market events.] "However, federal programs like
Social Security are relatively protected against Black Swans, if not
attacks from Washington insiders seeking political advantage."
'Without It I Would Have to Pinch Pennies'
Retired posters also shared what role their Social Security benefits had played in their in-retirement plans. For Bobert42,
and many others in the thread, it's been a big one. "My wife and I both
collect Social Security. In 2011, Social Security contributed 44% of
our income. In 2012 this will jump to 64%. So yes, Social Security is
and will continue to be a big factor in our retirement. We would be in
deep trouble if we had to depend on income from our investments given
the poor performance over the past decade or so."
WOODJ is on the same page, writing that his household's
Social Security benefits amounted to 55% of their spending last year. He
concluded, "I need Social Security to maintain our standard of living."
JBP57's post illustrates what a lifesaver Social Security
can be for those who have had to stop working earlier than they had
hoped. "Social Security is the largest part of my yearly income. I
started drawing at 65 and 10 months because I was out of work and had
gotten used to eating on a regular basis. I continued to draw when I
went back to work.