Saturday, September 5, 2015

Are Lowball Social Security Estimates a Blessing in Disguise?

As Laurence Kotlikoff noted in a past PBS News Hour piece regarding lowball Social Security Estimates, “The Social Security Administration’s benefit online calculators aren’t to be trusted for use for people under age 60, even for someone who is single and was never married and will never marry.”

The article goes on to note, “The reason is that unless you change their assumptions, they assume (in contradiction to the Social Security Trustees’ Report’s own assumptions) that the economy will experience zero economy-wide average real wage growth and zero inflation between now and the end of time. That’s an odd assumption for an economy that’s experienced positive average real wage growth rates as well as inflation for each of almost all the postwar years.”

But there are other reasons why lowball Social Security estimates could be a blessing in disguise. 

An insecure future for Social Security
With baby boomers retiring in droves, the employment participation rate as low as it’s been in decades, and more and more people partaking in disability benefits, one thing I can say with certainty is that I’m very uncertain about the future of Social Security. 

Kotlikoff’s article noted that, “According to table IVB6 of last year’s Social Security Trustees’ Report, the system needs an immediate and permanent 23 percent cut in all SSA benefits starting now and continuing forever to cover its long-term funding shortfall. And for those of you who think the system’s trust fund is real, this requisite 23 percent benefit cut does take into account all of the trust fund’s assets.”

With this type of action looming, I’m already reducing my own benefit estimates by 25 percent whether the Social Security Administration does it for me or not.

Motivation to save harder
Personally, I find that when I think I’ll have less money – whether it’s now or in the future – I’ll work harder to earn and save more.  According to Kotlikoff’s article, numbers are “…intentionally used to produce low-ball benefit estimates so people will save more on their own and they won’t be so hurt if the system’s benefits are cut in the future, which seems likely.”

With Social Security’s uncertain future, I think that this is a reasonable approach, although whether it’s working or not for the majority of people could be debated.

A potential bonus in retirement
It’s often nice to get those unexpected little bonuses in life.  Whether at work in the form of a gift card, cash bonus, or just recognition by way of an award, at the store in the form of discounts or coupons, or when using a credit card in the form of cash back or rewards, there are any number of ways many of us find abundant bonuses in our everyday lives.

Well, I look at it no differently in retirement.  The potential to get a little bit more from Social Security than I expected is a bonus, and I would rather get more than I’m counting on than less.  Therefore, I’m happy that between the Social Security Administration’s estimates and my own, we’re hopefully both guessing a little lower with my future benefit totals.


The author is not a licensed financial or retirement professional.  This article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

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