I’ve worked out exactly how much money I’ll need in retirement and how much of that will come from my retirement savings. While making plans, I didn’t include Social Security as a source of income.
You may be surprised to learn why I didn’t include these benefits in my calculations.
Why I didn’t consider Social Security in my retirement plans
In order to meet my retirement savings goals, I assumed that my savings would have to provide enough income without any Social Security benefits. There are three main reasons for this.
1. I don’t have control over what happens to Social Security
Unfortunately, I have no control over how much in Social Security benefits I’ll receive in the future, or when I’ll be able to apply for those benefits.
Although Social Security benefits will continue even if the trust fund runs out, it is possible that lawmakers will make changes to the program due to the trust fund’s financial difficulties. The age at which you are eligible to receive your full social security benefit could be altered by a statutory amendment. When the trust fund money runs out and benefits can only be paid from current revenue, a 22% benefit cut could be implemented automatically in the future if lawmakers do nothing.
I’d rather not rely on a source of income over which I have no control because doing so could lead to financial difficulties if I receive less income than anticipated. Because I can alter the amount I need to save to achieve the retirement income I desire, I have a great deal more say in what happens to my retirement nest egg.
2. I may need to rely on savings before I claim Social Security benefits
Although I could apply for Social Security benefits at the age of 62, doing so would result in a significant reduction in my standard monthly benefit.
My savings may be my only source of income for a long period of time after I stop working if I want to delay my claim for Social Security or allow my surviving spouse to receive a larger survivor benefit.
With no help from Social Security in the near future, I’d like to make sure my investment accounts generate enough income to cover my expenses at a safe withdrawal rate.
3. I would rather end up with extra money than not enough
Social Security will be an additional source of income if I don’t take it into account when calculating the amount of income my nest egg must provide for me.
A financial cushion is preferable in the event of unexpected expenses as a retiree, such as higher healthcare costs or the need to provide more financial assistance to my children.
Not factoring in Social Security means I need to save more
I’ll have to save a lot more money if I want to build a nest egg that can support me without Social Security.
After all, I need to make sure that my retirement income is at least 80% as large as it was before I retired. I could save a lot less money if I assumed that Social Security would cover 40% of my retirement expenses. But I’d rather sacrifice a little now so that I don’t have to struggle when I’m no longer able to work.
So, despite the drawback, is this a sound strategy for saving for retirement? Your ultimate decision is between having some of your future retirement income come from an outside source or taking full responsibility for your own retirement security. It was a no-brainer for me.