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3 Reasons I'm Writing Off Social Security for My Retirement

By Maurie Backman - Nov 23, 2020 at 6:02AM

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Many of today's workers are no doubt counting on collecting Social Security. Here's why this Fool isn't.

Social Security helps millions of seniors stay afloat financially, and chances are, it will be around for a long time, in least in some form, to do the same for future retirees. But I'm not factoring Social Security into my retirement plans, and here are a few specific reasons why.

1. Those benefits won't replace much of my income

Social Security, generally speaking, will replace about 40% of the average earner's pre-retirement income. But I happen to earn more than the average American.

According to the Social Security Administration's national wage index, the average wage in 2019 was $51,916.27, and my earnings currently exceed that threshold. But because they do, Social Security will replace even less than 40% of my pre-retirement earnings, and like many seniors, I expect to need a good 80% income replacement rate to live comfortably and do the things I hope to do once I'm no longer a full-time worker. As such, I know I'll need to rely much more heavily on my savings and other income sources (perhaps a part-time job) than on those benefits.

Loose pile of Social Security cards

Image source: Getty Images.

2. Benefits may be cut

That 40% income replacement target we just talked about for Social Security? Well, that assumes benefits won't be slashed in the future. But right now, that option is, unfortunately, on the table.

Social Security, in the coming years, will owe more money in benefits than it collects in revenue as baby boomers stage a mass exodus from the workforce and too few replacement workers enter it. The program can tap its trust funds to bridge that funding gap, but only for so long. Once those funds are depleted, which, as of now, is projected to happen as early as 2035, seniors on Social Security may be in line for a 24% reduction in benefits. If that were to happen, it would make Social Security an even less robust means of replacement income for me.

3. New policies could leave me with a lower benefit -- or none at all

Right now, Social Security is available to seniors at all income levels. Now, my hope is that if I save diligently and make sacrifices during my working years, I'll retire with a decent chunk of cash. But who knows if the rules will change to exclude retirees with access to a certain level of income from getting Social Security, or collecting benefits in full?

There's already a proposal on the table to do means testing for Social Security, and if it comes to pass, higher earners will face a reduced benefit or, potentially, no benefit at all. Now to be clear, there's no guarantee that such a proposal will pass, and it's too soon to know what income thresholds will come along with that arrangement. But it's a chance I'd rather not take, which is why I'm focusing on padding my savings as much as possible.

In the absence of a crystal ball, it's impossible to know what's in store for Social Security. But one thing I do know is that right now, there are too many unknowns surrounding those benefits to make me feel comfortable relying on them. And that's why in the course of my retirement planning, I'm not counting on Social Security at all. If I end up collecting some money from it, great -- I figure I can use that cash for travel, entertainment, or other extras. But writing off Social Security actually helps me feel like I have more control over my retirement. Because I'm not counting on those benefits, I'm more motivated to save as best as I can. And also, I don't need to worry every time bad news emerges on the Social Security front.

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