Should You Count On Social Security?

As a financial advisor, one of the questions I’m often asked is “how should I plan for Social Security?”  More and more young people today are choosing to plan for their retirement as if it will not be around.  While this approach may seem prudent its implementation can be costly.  Planning for retirement as if Social Security will not play a role requires you to make accommodations for its absence.

For example, to achieve the same income at your desired retirement age you’ll have to take more portfolio risk or save more than if you were counting on Social Security.  “Well, I’d rather plan for it to not be there and be pleasantly surprised if it is,” you say.  Sounds prudent, but are you needlessly sacrificing by saving too much and taking too much portfolio risk when you could be taking more trips with your family and worrying less about the stock market?

And it’s not just the young folks.  Research is starting to show that delaying Social Security can be one of the best hedges against the risks of longevity (outliving your assets,) high inflation and low stock market returns during your retirement years.  Yet, the numbers show that the majority of filers still elect to start receiving their benefit earlier rather than later.  Many early filers admit that they didn’t research their options before filing while others confess that their decision to start early was based on the fear that Social Security would disappear before they had a chance to start receiving benefits.

Let’s take a quick look at the current state of the system so we can make an informed decision.

The case for not planning for or not delaying Social Security often goes something like this.  In the year 2033 the Social Security system will go broke.  As more and more Baby Boomers become eligible for Social Security benefits the ratio of workers paying into the system to retirees will decline to the point at which current tax revenues plus interest on the social security trust fund will be insufficient to fund current benefits.  By the year 2021 this will force the trust fund to start dipping into its principal. By 2033, the most recent estimate, the trust fund will be depleted and there will be no way to continue to make up for the shortfall between revenues and benefits. There may be some truth in these assumptions but the impact is often misunderstood.  While 2033 is an important date, and “going broke” makes for a great headline, it does not tell the whole story.

According to the latest Trustees Report on Social Security, the system is in better shape than you might think.  After reviewing the Trustees report,  Michael Kitces notes in a recent blog post , “The reality of the Trustees Report is actually that, even if we do nothing to resolve Social Security in the coming decades, the system will still be able to pay out 77% of its projected benefits in 2033 when the trust fund is depleted, and continue to pay out more than 70% of its projected benefits for the remainder of the century. In other words, even if we do nothing to fix the system at all, today’s Generation X and Y young adults would still be anticipated to receive about 3/4ths of their anticipated benefits for their entire retirement.”

Ultimately, whether or not to include Social Security in your financial plan and the timing of your benefits are personal decisions.  But they are decisions that will have a meaningful impact on your lifestyle, now and in the future, so make sure you are choosing based on fact and not media hype.

What do you think?  Is it wise to plan to receive Social Security benefits?    Contact us.

Geoff Hall, CFP®
[email protected]

My wife, Crystal, and I have been married for 11 years and have two kids, Cooper (10) and Rhodes (8.) When I’m not spending time with them you might find me downtown serving at our church, pushing my limits during a mountain bike ride or having coffee with a friend in the Five Points area. I've been a financial advisor for 29 years and I'm thankful for the privilege of shepherding my family of clients through the ups and down of the markets, and of life for that matter.