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I'm Not Factoring in Social Security When Figuring Out My Retirement Goals. Here's Why

By Christy Bieber – Jun 24, 2020 at 6:02AM

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It's not for the reason you think.

When you're figuring out your retirement savings goals, one of the key steps is to think about how much income you'll need in retirement and where it will come from.

For most people, retirement money comes from two sources: Social Security benefits and retirement investment accounts. When I set my savings target, though, I didn't factor in how much Social Security would pay me when calculating the future income I'll have available. In fact, my retirement goals are based on the idea that I'll be supporting myself entirely without any help from Uncle Sam. Here's why. 

Social Security card with money sitting on top of it.

Image source: Getty Images.

Social Security benefits may make up a smaller share of my retirement income than expected

I didn't leave Social Security out of my calculations because I expect that I won't receive any benefits. In fact, I know that the program can't really run out of money, unless lawmakers change its funding source, because it will always have payroll taxes coming in from current workers that it can use to pay benefits. 

Instead, I opted not to consider the income Social Security will likely produce because I think there's reason to believe my future benefits will be worth less than the amount estimated on my online Social Security account. And there are a few primary reasons for that:

  • A benefits cut is likely coming: Social Security's trust fund is expected to run out of money in 2035, which would mean the program would be able to pay benefits only out of revenue coming in. This would necessitate around a 24% cut to retirement benefits. And while lawmakers will probably act to prevent that, many proposals for fixing the program's finances would also result in a reduction in benefits. Since I'm more than 20 years away from retiring, there's a very good chance my future benefits will be smaller regardless of whether the trust fund runs short or there's a policy fix. 
  • Social Security is losing buying power: Several years ago, a report revealed that Social Security benefits had lost a third of their buying power since 2008. Benefits aren't keeping pace with inflation because annual raises (cost of living adjustments, or COLAs) are calculated using a pricing index that's not very accurate in measuring how prices rise for seniors. Nothing has changed since then, so it's likely the buying power of benefits will continue eroding in the years leading up to my retirement. 

It's impossible to try to figure out how much these factors could affect the amount of future income Social Security is able to provide me with. Rather than trying, I'm just setting retirement goals without factoring in any Social Security at all, instead acting as though my investments will be my sole source of income.

While this means I need to save more for retirement, it also means that whatever extra money I happen to get from Social Security will be just that -- extra. I won't have to depend on a government program with an uncertain future to ensure my needs are met, and whatever benefits I happen to get, I can use to enjoy life more or to give away to others who are in need.

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