Government Gravy: Am I Actually Factoring Social Security Into My Retirement Plans?

Uncle Same

I’ve been told for as long as I can remember that Social Security won’t be around when I get older. That it’s collapsing under its own weight. That it’s irresponsible to plan on it and it should be irrelevant to me.

I don’t know who exactly has been telling me this. Pretty much everyone. I grew up in a ruby-red Republican state with a count-on-yourself kinda work ethic. I’m sure my father said something to me about it over the years. And I had some strong libertarian views back in college.

Regardless of where this idea came from, the Social Security won’t be around for you mantra has been the “truth” I’ve lived with my entire working life. And I think that’s the case for a lot of Gen-Xers and especially Millennials… What’s the next one, Gen-Z? Yeah, you guys really won’t have it. But you’ll live in a VR wonderland after the singularity, so hang your hat on that.

I’ve brushed Social Security off as fantasy. Planned to fend for myself. Contributed to my 401k early and often. Through thick and thin. I’ve assumed the safety net won’t be there. That’s a good thing.

Then maybe it’ll be a nice surprise if a crumb of government cheese ever comes in the mail.

But, many moons have passed. I’m a few dozen heartbeats from turning 40 (holy buckets that’s weird to say). And it kinda looks like Social Security may actually still be around, in some form or another, for my generation, by the time we get old (I’ll go into the reasons why I think that’s the case a little bit later).

That made me want to learn a little bit more about Social Security. I was curious how it might affect my plans for an unconventional Runway Retirement. What I found was… oddly comforting.

The Rules of Social Security (currently)

I’m going to over-simplify. Because it’s a free country…

For those of you who don’t know anything about S.S. in the U.S.A., it’s that thing that takes 6.2% of your earnings every paycheck (12.4% if you’re self-employed) to put into a government-run system that pays benefits for people who are already “retired”. It also pays out disability benefits, benefits for spouses, and benefits for dependents of deceased workers. Read about it all here.

Under current law, if you’ve worked and paid into the system for at least 10 years or so, you can apply to get your monthly Social Security retirement check when you turn 62… but you won’t get the whole enchilada (as they say). You have to delay gratification until you’re 67 to get the full check. You get a little extra sauce on top if you wait until you’re 70 to draw Social Security.

There is actually a pretty nice Retirement Estimator on the Social Security Administration website. I plugged in a few of my own numbers to check out the difference in the Social Security benefit at 62 versus 67 and 70. Here’s how my benefit might break down if I took a more “conventional” route to retirement and worked my corporate job into my 60s:

Age 62: $1,579/month (out early)

Age 67: $2,280/month (the enchilada)

Age 70: $2,854/month (extra sauce)

Not a huge amount to retire on. Even the Social Security Administration admits…

“Social Security was never meant to be the only source of income for people when they retire. Social Security replaces about 40 percent of an average
wage earner’s income after retiring.”

But the benefit was actually much more than I was expecting. Factor in my wife’s benefit, and our combined benefits could add up to more than $50,000 annually (taxed on anything above $32,000). That’s in today’s dollars, since Social Security is currently indexed for inflation. Which is, of course, very important.

But I’m not conventional

As a guy who’s thinking about exiting the corporate grind much earlier than 2040, I’m much more interested in what my benefit might look like if I stopped working for a salary at age 44.

What if I earned nothing after age 44? My wife and I plan on having multiple spigots of cash flow later in life, but to make this calculation as simple as possible, what if I didn’t earn a cent more? What might my Social Security benefit be starting at age 62?

Survey says?… $1,013/monthAgain, that’s in today’s dollars. In future dollars, it might be more like $1,446/month, or $17,350 per year (with a modest 1.5% annual cost of living adjustment).

Not impressed? Yeah. It sure doesn’t seem like much. But that’s real money. Real money that can take pressure of the IRAs and 401k. And that’s the Social Security benefit I’ve already almost earned.

Just for fun, I adjusted the numbers in Keep Thrifty’s famous Retirement Freedom Calculator to see how a Social Security check (that doesn’t bounce, mind you) might affect my Retirement Freedom Date.  Retirement Freedom is the date you can theoretically stop contributing to your retirement account, because you’ve already got enough seed-money in it to grow big enough all by itself by the time you “retire” to fully fund your goals in retirement.

Funding a Mr. Money Mustache-style spending lifestyle of $30,193 per year in retirement, my wife and I are scheduled to reach Retirement Freedom in two years. That’s without Social Security factored in. I talked about this in my article, Crispy Cabbage Takes A Ride High Into Orbit On ‘Retirement Freedom’.

If I lop off the $17,350 annually that Social Security might cover in retirement, $30,193 becomes $12,843, and our Retirement Freedom Date is already long past. That’s before even factoring in my wife’s benefit. Theoretically, my wife and I could fund a Mr. Money Mustache-style spending lifestyle on Social Security alone.

Of course, we still plan on contributing to our retirement accounts until at least 2020, but it’s fun to see the impact of Social Security. And I look for any excuse I can get to play with Keep Thrifty’s handy calculators.

The back-up to the back-up back-up plan

Like I mentioned, we plan on having cash-flow spigots for days deep in our “retirement” years, so we shouldn’t really need Social Security. That’s also why I’m comfortable funding our retirement accounts to a relatively modest Mr. Money Mustache style spending lifestyle. We shouldn’t need our retirement account money either. If everything goes right, that’ll all be gravy on top of mounds of mashed potatoes of recurring income.

Side-bar: I know Mr. Money Mustache might take exception to the word “modest”. He’d say he lives a kick-ass life and I believe him. But he doesn’t read this blog and he’s a super-hero that builds his homes from scratch and runs sheetrock with a Schwinn and red Radio Flyer. He’s hardcore is what I’m saying.

My point? I see our retirement accounts as more of a back-up plan. If we’re not able to get enough cash spigots of recurring income turned on to fund our ideal lifestyle or build a lifestyle business together, we’ll have retirement accounts to draw from later in life. Ideally, we won’t even have to touch our retirement accounts. Unless we want that much more luxury in our lives or we have a huge emergency or until the government makes us take it out. Part-time work is another back-up if the spigots run dry.

What I just found out while writing this article is, Social Security might be a legitimate back-up to the back-up back-up plan (not necessarily in that order). Social Security is yet another thing that makes pulling the trigger on a Runway Retirement in less than 5 years seem much less risky.

With our retirement accounts on auto-pilot and maybe thousands coming in from Social Security later on, we can focus almost all of our income and energy right now on beefing up our cash war-chest “runway” and making our lives great for our middle years, knowing we shouldn’t have to worry about the back-end of our lives.

But will it actually be there?

Nothing is guaranteed. People have been talking about the death of Social Security for as long as I can remember and that’s burned in my brain. It’s really hard for me to trust that it will actually be there for me. And I think it’s a good thing that I haven’t really thought about it until now.

But my logical mind says there’s a good chance Social Security will still be around in some form or another by the time I can use it, and here’s why:

1. They’ve been talking about its demise. Yet it only gets stronger

In its 80-plus-year existence, Social Security really hasn’t changed a whole lot. The biggest thing that changed is the amount workers pay in taxes to fund it. 1% then → 6.2% now. It doesn’t seem to be one of the taxes “they” cut when “they” talk about cutting taxes.

In 80 years, only 2 years have been added to the “full” retirement age. It started off at 65 and is 67 now. There has been talk about increasing it again. But, proposals I’ve seen call only for a gradual increase. This proposal from the Social Security Administration Office of Retirement Policy itself would only add about 9 months to my “full” retirement age… 22 years from now.

Meanwhile, in 1972, congress added automatic cost of living adjustments for Social Security beneficiaries that continue to this day. Cha-ching!

And, in 2000, here’s the big one for people like you and me, congress eliminated the “earnings test” for Social Security. When you reach “full” retirement age, you can earn as much money as you want, and it won’t reduce your Social Security benefit. At all. Cha-cha-ching!

2. Turns out it’s really hard, politically, to take money from people who tend to vote

There’s a lot of bluster about wholesale changes to Social Security, but when push comes to shove, it’s really hard to take money from people who are coming up on retirement. Especially if it’s from a program they paid into. They tend to vote. And I’m sure AARP represents their interests well in Washington.

Take a look at this graph of voter turnout by age from the U.S. Elections Project


3. The federal government can print money out of thin air and run a perpetual deficit

If the post-great-recession era has taught us anything, it’s that overheating the printing presses on the magic money machines doesn’t necessarily lead to runaway inflation. I’m not a macro-economics guy, so I’ll just leave it there. It’s just been my observation.

4. Automation and Universal Basic Income

While some folks in this country talk of reining in “entitlements” like Social Security, there’s a growing chorus of people (especially across The Pond) in favor of actually expanding entitlements to a universal basic income or “citizens’ wage” or something like it. It’s like a participation trophy, only money. And you don’t really have to participate.

That’s sooo Europe.

And as automation and artificial intelligence start to take more and more jobs away from hardworking Americans (and not just the low-paying jobs), that chorus will become louder here, too. In the good-ole-pull-yourself-up-by-your-bootstraps-U-S-of-Merica.

So, forget about entitlements like Social Security going away. I think the pendulum may just swing hard the other way. Not saying it’s right or wrong. I had the citizens’ wage debate with my imaginary friends and it’s a tough one.

An extra dose of confidence for Runway Retirement

No. I’m not counting on a government handout. Not really.

Social Security isn’t a handout, anyways. My benefit represents my share of a system I’ve been paying into for over 22 years. And, after digging into it a little bit more, I think my little bit might just be sitting there for me 22 years from now. It may be a little smaller as the politicians nibble, but I think it’ll be there.

It’s not really about the payout, though. What Social Security means to me, right now, is extra confidence. Knowing my wife and I will more than likely get something meaningful from Social Security makes me much more confident in our ambitious goals for Runway Retirement, and that confidence may even help us get to that stage in our life more quickly.

Instead of toiling behind a desk for longer than I want to in order to put that little bit of just-in-case padding in our retirement accounts, maybe we can funnel even more money into our after-tax Runway Retirement war-chest and at a faster clip. Then we can do all the cool stuff we want to do sooner…

And get on with the business of building an ideal life we don’t want to retire from.

You all know I’m not an economist or a financial advisor, so do your own research when deciding what to do with your money. And please, correct me if I got anything wrong in this article. I’m a relative novice at Social Security and its benefits and just started researching it a week ago.

These are my humble opinions. Please give your opinions in the comments below. I’d love to hear them. And I love to debate over beers. Thanks for reading!

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  1. As a Millennial interested in personal finance, I have often had many of the same thoughts. I plan as if it’s not going to be there, but as you’ve pointed out, it’s changed a lot in the last 80 some years and it’ll probably continue to change. I am hopeful there will be some sort of SS available.


    • Hi Fille,

      Thanks for reading! That’s absolutely right. I plan as if it’s not going to be there, but it helps me have more risk tolerance when I need it… So I don’t chicken out when the time is right to strike off on my own.

      Liked by 1 person

    • Thanks, Cubert! I’ll have to check out Fritz’s article. I’m sure he’s got it well covered.

      … and skol! We’ve got to get into that Super Bowl this time. Planning on heading over to Bunny’s for the game tomorrow, where I watched the collapse in the NFC Championship 2009. Hoping history doesn’t repeat itself.

      Liked by 1 person

  2. Awesome analysis! I grew up with the same thoughts – that I should pretend that social security won’t exist when I retire. I’ve avoided building it into any of my calculations, but I agree – it’s unlikely it’ll be completely gone by the time I get there.

    Factoring in SS as a risk reducer makes a ton of sense and when you’re able to reduce your spending, the amount it theoretically provides can be a substantial portion of your cost of living.

    Great write-up! Also, thanks for the shout out on the calculator!

    Liked by 1 person

    • Thanks, Chris. It’s an analysis I’ve wanted to do for a while. I was especially surprised how much I had already “banked” in benefit. Even if it doesn’t actually materialize, it’s just that extra psychological cushion I can use to push myself into more bold adventures. I think it’s high time I started spending some of that psychological capital.

      And the Retirement Freedom calculator is one of my favorite spreadsheet tools ever! I’ve got a printout of it in my office to compare my actual retirement savings with for fun. Did I mention my wife and I will be billionaires in a hundred years if we keep working and contributing to our 401ks.


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