Future Social Security benefits overstated
This question was address in 2014 in "Social Security Inflation Rate unrealistic" but what to do about the issue was not addressed.
My wife & I are collecting SS benefits which are 35% of our income. As discussed in 2014,the program does not have a separate entry for SS benefit growth. Therefor,for all years beyond the current year ESP grows the benefit amount by the inflation rate set in the assumptions tab which I have set at 6%. This results in our future SS benefits being significantly overstated. What the 2014 discussion did not address was how to fix this issue. I am concerned that our future discretionary spending is unrealistically high because 35% of our income is inflated. Using the Economic Assumptions window to decrease SS by some percentage beginning in a future year doesn't work because after the selected year for the reduction, the new benefit amount grows at the inflation rate. The fact that no other ESP user has raised this issue makes me think I'm missing something. Could you please discuss this issue. Specifically, what can I do to offset the inflated SS benefit income.
Tue, 11/05/2019 - 15:16
I don't see why you say that the SS benefit is overstated per the model? The benefits are simply tracking with inflation, and if it's at 6% then the SS would be adjusted to 6% also isn't that fair to say? Inflation was high in the early 80s, and SS cola was 14% in 1980 and cola adjustments followed suit with inflation.
Seems like if you set inflation at 6% then you take the good with that bad, no?
Or maybe you are making a feature request that SS not track with inflation?
Tue, 11/05/2019 - 15:58
I found that earlier
I found that earlier discussion:
I see now. Yeah, I think it was just tabled or Kotlikoff decided to leave things as is.
Fri, 11/08/2019 - 20:34
Dan, I reviewed the 2014
Dan, I reviewed the 2014 discussion and believe that the basic question was not addressed. Mike O’Conner said he raised the issue with Larry but I could not find any follow-up that addressed the issue.
The basic question I believe is this: For those receiving SS benefits now, setting the inflation rate (assumptions tab) to a value higher than the average SS COLA - 1.52% since 2010 - will result in higher SS benefits being used in ESPlanner's analysis. Since the program does not provide the ability to set a separate SS benefit inflation rate how can we offset the effect of this too optimistic SS income? Even the default inflation rate of 3% results in an inflated SS benefit. Over my expected lifetime could this result in exhausting my resources earlier than projected? I don't know that's why I rely on this great tool. Is the excess income error small or large? I believe that until we can determine the impact of the inflated future SS benefits we can't be confident with the ESPlanner reports.
I think it would be beneficial if we could get Larry's input. Thanks
Tue, 11/05/2019 - 16:26
Hi Dan, I wasn't suggesting
Hi Dan, I wasn't suggesting that the program be revised to enter SS inflation separately. I've tracked my family's personal inflation for years and recently it is running about 6%. SS benefits since 2010 have averaged 1.52% including 2 years at 0%. I see no indication that benefits going forward will ever match the COLA for retirees. As you know, the COLA that's used for SS benefits is heavily weighted to expenses that don't benefit retirees. That's why I've raised this issue. How do I modify my data entry to offset the discrepancy between a 6% inflation rate and the realistically lower SS COLA? I guess I could set the program's inflation rate to 1.5% if I think that's going to be the SS COLA going forward then enter all the expenses which ESP grows by the program's inflation rate. I could then grow each of those expenses by whatever percentage results in these growing by 6%. Is there a better way?
Fri, 11/08/2019 - 21:07
Yes, I can ask Kotlikoff and/or Mike to take a look at your question.
Sat, 11/09/2019 - 03:59
James, What you'd like is to
James, What you'd like is to be able to set an inflation rate that's different from the COLA for Social Security. We'll put this on our to-do list. In the meantime, if you are running MaxiFi, enter a non-tax related special expense in each future year, in today's dollars, that reflects the annual additional loss of Social Security purchasing power. So if your annual benefits are now $10,000 and you enter a 6 percent inflation rate, but believe the SS COLA will be 2 percent, enter a $400 special expense every year in the future, in today's dollars, again, non tax-related. This is a pretty decent work around. Cheers, Larry