Three-quarters of Americans are concerned that by the time they’re ready to retire, Social Security won’t be there for them, according to the most recent Transamerica Retirement Survey.
This is especially true for younger workers: 83% of Generation X and 80% of Millennials have this fear, compared to 65% of Baby Boomers.
But what do experts have to say about Social Security in retirement? Are financial planners still relying on the social safety net in their future calculations? Here, financial experts weigh in:
Consider it—but Millennials shouldn’t count on it
“If a Millennial plans well, they won’t have to worry about Social Security. This generation really needs to understand that Social Security is, in fact, an anti-poverty insurance policy and not a personal pension. Live within your means, pay yourself first, and let compounding returns do the work, not trying to pick the hottest stock or sector.” –Edward Gjertsen, financial planner in Northfield, IL
Consider it—but benefit design could change
“When the subject of Social Security arises with my Millennial clients, I reassure them that it will be there for them and to ignore all the noise and talk. However, I also let them know that keeping it solvent may require delay in the full retirement age or a reduction in benefits.” –James Bryan, financial planner in Edina, MN
“I tell younger clients that I firmly believe that Social Security will be around when they reach their 60s and 70s. However, I tell them that I also firmly believe that it will probably look different than it does today. The full retirement age may be raised. They may go to a different formula—use 40 years of work record instead of 35, or they may means test benefits—or they might increase the income cap on which your annual tax is calculated. They might increase the tax rate from 12.4% to 15%. You will very likely get something, but it may not be what your estimate currently shows.” –Ryan Fuchs, financial planner in Little Rock, AR
Don’t give it full weight
“Not considering it at all seems excessively conservative, but giving it full weight seems excessively optimistic. Our practice is to set the growth rate of Social Security in retirement at 1% less than the overall inflation rate of the plan. We do this for all clients regardless of age.” –David Hultstrom, financial planner in Woodstock, GA
“The trust fund is set to run out of money by 2034. The current tax revenue is only enough to pay two-thirds of scheduled benefits. I do think benefits will be around, but I tell Millennials to plan for two-thirds benefits at most, expect to be older than 67 to receive their full benefits, and expect the Social Security wage base to increase over time.” –Devin Pope, financial planner in Salt Lake City, UT
“For Millennial clients, I recommend counting on 25% to 50% of what Social Security benefits are today. There is still so much time to instill and practice strong financial habits that you shouldn’t have to rely on benefits in the future. Fair or not, this puts clients in a much better position to live and retire on their terms without worrying about the inaction of Congress.” –Mackenzie Richards, financial planner in North Kingstown, RI
Don’t count on it—consider it a potential bonus
“We do not think it’s prudent to factor Social Security benefits into the plans of our younger clients. Building plans based upon these conservative assumptions may lead to better outcomes whether Social Security is available for them or not.” –Howard Pressman, financial planner in Vienna, VA
“We do believe that Social Security in retirement will likely be around in some form in the future. However, the Federal government will need to continue raising the retirement age in addition to raising the tax cap of $128,700 in 2018 for the system to remain viable. We believe this will happen, but we don’t know exactly what it will look like nor do we believe it will provide a sufficient amount of income in retirement. For those reasons we specifically exclude Social Security in our retirement projections and don’t consider it as a source of future income in our financial planning process and analysis. We do this to be conservative and make sure that our clients are saving enough for retirement irrespective of whether or not Social Security benefits will be there.” –Anthony Badillo, financial planner in Charlotte, NC
Kate Ashford is a freelance journalist who has written for BBC.com, LearnVest, Money, More, Real Simple, and Parents, among others. Before going freelance in 2007, she worked at both Money and Good Housekeeping magazines, where she covered personal finance, insurance, travel, and consumer trends. Kate has appeared on CNN, ABC, CBS, and local New York TV stations, as well as several radio shows.
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