By Dr. Tyler Scott, WCI ColumnistI have to admit that one of the factors involved in choosing which articles to write here at The White Coat Investor is the frequency and repetition of questions I get from my clients. I’ve written about the Backdoor Roth, interest rates, cars, and cash flow—all because I think they are worthwhile topics and, selfishly, so I have a really nice stock email saved in the form of these blog posts that I can forward on when I get the inevitable repeat questions.
This is one of those posts. Anxiety about the solvency of Social Security has been percolating among the public for many years now, but the recent emphasis on government efficiency, debt, and spending (along with considerable market volatility so far in 2025) has seemed to heighten that anxiety for many. The number of clients now saying, in effect, “I fear Social Security is totally hopeless so I want you to build me a plan that assumes that I will never get any Social Security benefits,” has been on the rise in recent months.
I get the fear—it’s not an unfounded one; it’s just an uninformed and unnecessary one. Let’s examine the dangers of believing this bedrock American program will disappear and why we don’t need to worry about that possibility.
The Risks of Believing Social Security Will Dissolve
The Value of Your Benefit
For most readers of this blog, your Social Security benefit is tremendously valuable. To know how valuable it will be for you, just look at your most recent Social Security statement (a practice I think is worth doing once a year as part of your household Annual Financial Review).
My statement shows that if I work until age “full retirement age”—in my case, that's age 67—my benefit will be $4,066 per month. If I keep working until 70 and delay benefits until then, my benefit will be $5,048. For Megan, my wife, those amounts are $1,700 and $2,100, respectively.
Assuming we stick it out until age 67, that's ~$5,800 per month or a guaranteed $69,200 per year, adjusted for inflation every year until we die. That is a really valuable benefit. Social Security can be thought of as the best Multi-Premium Deferred Inflation-Adjusted Annuity on the market. If we live to age 95 and get a 3% cost-of-living adjustment each year, we would receive $3.1 million from Social Security.
When using Mike Piper’s tool to come up with an optimal Social Security strategy and more statistically likely life expectancies, we see the net present value (accounting for the time value of money) of our benefit is half a million dollars today at ~40 years old.
This begs the question: if Social Security vanishes, how much would you need to pay to purchase a comparable product? In other words, if you wanted to buy a guaranteed inflation-adjusted income stream at age 67 that paid you an amount similar to Social Security for the rest of your life, how much would that cost you?
First, let me say it is increasingly difficult to find inflation-adjusted annuities, but assuming you can find one, there is also the question of whether it makes sense to buy one over a standard annuity. Stan the Annuity Man (a true character if ever there was one but a good source of annuity education) has discussed that question. His point is that if you buy an inflation-adjusted annuity, your initial payout is lower, with the break-even point likely close to 7-9 years—don’t let the annuity salesperson tell you (sell you) otherwise.
To try to answer our question of how much you would pay at age 67 to purchase a lifetime income stream, I went shopping on the annuity sites for a SPIA (Single Premium Immediate Annuity).
I told an annuity aggregator sales website that I was a man living in Utah who just turned 67, I wanted the payments to start next month, and I wanted an inflation adjustment equal to CPI, with the benefits ending at my death.
I got zero offers. The reason was that “no carriers could be found offering an inflation-adjusted option. Please retry your search without the inflation adjustment rider.” As I said earlier, it’s hard to buy an inflation-adjusted annuity right now.
I ran it again without the inflation adjustment and got offers from 12 insurance companies. The average annual payout across the various insurance companies for a $100,000 purchase was $5,500 or 5.5%. I did it again for Megan, and the rates were not meaningfully different.
Now, we can finally do our math on what it would cost me to purchase a (worse) Social Security replacement. If Social Security pays us ~$70,000 per year and the annuity returns 5.5%, then the math looks like this: $70,000/0.055 = ~$1.3 million.
What Is the Real-Life Application?
You may be saying, “Fun math experiment, Tyler. I am happy for you and bored for me. What exactly is your point?” Excellent question; thanks for staying your boredom this long. I will try to bore you again shortly.
The point is this. If you pretend like Social Security isn’t going to be around when it’s your turn to claim it, you are going to have to save A LOT more money to reach your retirement savings number. For me, it's $1.3 million more.
What does that look like today?
It means that you must increase your savings rate significantly, which means you get to buy fewer tariff-enriched dolls, eat out less, travel less often, buy a cheaper house, drive your cars longer, and/or otherwise reduce your quality of life.
How much does my savings rate need to increase if I ignore Social Security?
For me, at age 41, to build up an extra $1.3 million by age 67, assuming a 5% after-inflation rate of return for the next 26 years, I would need to set aside an extra $25,433 each year. Our household income is about $280,000, so that means my savings rate needs to go up by 9%. That is a massive variable, and it would represent a fundamental change to our entire financial plan.
If we were unwilling or unable to increase our savings rate that much, how much longer would we need to work to make up for ignoring Social Security?
We expect our retirement expenses to be ~$150,000, so we expect to need ~$3.75 million to retire (25x expenses). If we ignore Social Security, we need $3.75 million + $1.3 million = $5.05 million. If we continue at our current savings rate, assuming the same 5% after-inflation return, it will take an extra seven years to reach $5.05 million compared to $3.75 million. In other words, you have to ask yourself: am I so committed to my nihilistic view on Social Security that I am willing to work seven more years to assuage that anxiety?
I certainly am not, and I don’t think you should either.
Why not? Good question, let’s hop back on the boredom train to its next stop on the geek line for some answers.
More information here:
8 Things You Must Know About Social Security
The Consequences of Ignoring Social Security
Don’t Worry About Social Security Going Away
The Problems
People’s anxiety and water cooler statements that “Social Security is running out of money” are not incorrect. In the past, the Social Security Trust Fund collected more in tax revenue than it paid out in benefits. This resulted in building up a reserve within the Trust. However, over the past 15 years as the Baby Boomer generation has hit retirement age, the program has started to pay out more in benefits than it collects in taxes. In 2024, Social Security received $1.23 trillion in tax collections and paid out $1.385 trillion in benefits.
This is obviously not sustainable. In fact, a review of the most recent report from the Social Security trustees shows that the Trust Fund reserves are expected to be depleted sometime in 2033.
That sounds bad, right? I won’t be 67 until 2051. I must be totally out of luck!
No, not really.
The Solutions
Solution #1: Just Let the Trust Fund Run Out of Money in 2033 (or Whenever)
Sounds nuts, but keep in mind the tax information I just shared above. The program collected $1.23 trillion in taxes in 2024. That’s a heck of an incoming cash flow stream that can be used to turn around and pay for (most) of its obligations. Smart people like Mike Piper have told us that even if the Trust Fund is exhausted, the program could still cover ~75% of current benefits from tax revenue alone.
Is that a bummer for me? For sure, 25% less of $70,000 is a reduction of $17,500 each year.
Does it represent the end of Social Security, leaving me with the only options of increasing my savings rate by 9% or working seven more years? Definitely not. Mathematically, it means I would need to increase my savings rate by ~2.25% or work 1.75 years longer.
Solution #2: Increase the Social Security Tax Rate
The 2024 trustees report showed that if the Social Security tax rate were raised 3.33% to 15.73%, that alone would make the program solvent through the end of the century. For those of us making above the Social Security wage base of $176,100 [2025], that would result in an increased tax burden of ~$5,800 per year. That’s a little painful, but it’s not terrible. At least I haven’t been paying five figures a year for asset management that will underperform an index every year of my life, so, you know, there are worse things than an extra 3.33% Social Security tax.
Solution #3: Eliminate the Social Security Wage Base
The Committee for a Responsible Federal Budget put out a report indicating that if all wages were subject to FICA taxes instead of “just” the first ~$176,000, that would solve for 60% of the funding gap through the year 2098. If you add to that an extra 1.35% FICA tax, the entire problem is solved.
Bad news: This would result in a significant added tax burden for high earners. For someone making $350,000 of W-2 income, their Social Security tax would go from ~$11,000 to ~$24,000. On a financial planning note, I bet we would see much more interest in self-employed people choosing to incorporate (i.e., S Corp election over “just” an LLC or sole proprietorship) and taking more of their earnings as K-1 distributions with less as W-2 salary to avoid some of this added tax on W-2 earnings.
Good news: Your benefit would be much higher, given that you are paid out based on your contributions. Admittedly, there are diminishing returns on this value proposition.
Solution #4: Increase the Full Retirement Age (FRA)
Changing FRA from 67 to age 68 would solve 13% of the problem. Moving FRA to 69 while indexing FRA for longevity would solve ~40% of the solvency issue.
Congress could also change the metric used for the annual inflation adjustment. At present, CPI (consumer price index) is used, but a switch to chained-CPI would solve for ~20% of the projected shortfall.
Solution #5: Reduce Benefits
Another option is just to pay out less in benefits. The trustees report indicates that if benefits were reduced starting today for all current and future recipients by ~21%, that alone would keep the program afloat until the end of the century.
If we wanted to keep benefits the same for current participants and only reduce the benefit for future recipients, that would look more like a ~25% reduction.
Another version of this solution would be to means-test the benefits. Different versions of this could look like:
- A one-time test when benefits begin or at regular intervals after benefits have started.
- Taking into account all income or only so-called “wealth-related” income (i.e., investment income or business income).
- Including all assets or excluding commonly held assets like primary homes and cars.
- The test could completely eliminate benefits for those exceeding some threshold or phase out benefits as income and/or assets exceed the threshold.
- The test could produce impacts similar to those in the Medicare program that increase Part B premiums and the base cost of Part D for high-income participants.
Solution #6: Some Combination of These
This, of course, is the most likely solution. Cobbling together some politically tenable combo of these options in a way that placates whichever voter demographic happens to be most sought after in that given election cycle is probably what we will see.
When will the solution happen? Like most politically charged issues, it will probably happen at the last possible moment. The last time we saw significant legislation passed to address Social Security was in 1983. After eight years of watching the Trust Fund be depleted similarly as it is now, it was estimated that the program would be unable to meet its full obligations by July 1983. Guess when the legislation was passed? In April 1983. Classic 11th-hour problem solving.
The solution at that time was a stitching together of options, such as including government employees in the taxable employee pool, taxing half of the paid benefits for high earners, and raising the payroll tax.
More information here:
10 Reasons Not to Take Social Security Early
What to Do with This Information?
- I don’t think it is reasonable or helpful to ignore Social Security in your retirement planning. The cost to your current quality of life is too great for such a statistically unlikely event.
- If you want to make some adjustments to your financial plan, I think it is reasonable for anyone in their 50s or younger to plan on a 25% reduction in their expected benefits. The subsequent adjustment in your financial plan may look like a modest increase to your savings rate (2%-4%) and/or acceptance of working a couple of extra years.
- If you want to “ignore” Social Security in your simplified retirement projections, I also think it is reasonable to assume any after-tax Social Security income you receive will be roughly enough to offset the taxes you owe on your pre-tax account withdrawals. That is an easy, rational, safe way to not stress too much about how “to plan for Social Security.”
- Don’t hold your breath for a solution. Let’s plan to get back on the boredom train in April 2033 as we emotionally commute into Washington, DC, for a memorable game of political football. Hopefully, we have the senatorial equivalent of Tom Brady to thread the needle on a much-needed, late-fourth-quarter-social-safety-net touchdown pass.
- If you are one of my clients, please don’t be offended that I sent you a link to this post as a response to your question. Your question was good, just not unique.
How worried are you about not getting all of your Social Security? How are you planning for a possible reduction in your benefits when you retire? What else can you do?
Interesting article, I appreciate it. At some point, I imagine that the number of people receiving benefits will also decline relative to those paying in, which I presume would help as well. Immigration policy would certainly have an affect on this as well.
Thanks for reading and the comment. Yes, when the baby boomers have left us it’s plausible to believe/hope there are less beneficiaries receiving payments. Two counterpoints to that are:
1. The increased quality of medicine will likely keep recipients around longer.
2. As the number of Americans on SSI disability continue to increase there are less workers paying into the system and a simultaneous increase in the those receiving payments at an “early” age (yes, the OASI trust and the DI are technically separate but their assets are often evaluated together).
For a fascinating examination of this topic I recommend this podcast from 12 years ago:
https://www.thisamericanlife.org/490/trends-with-benefits
Another fantastic article! Well done Tyler!
Thanks Charles! I am very grateful for our “columnist community”. I hope to see you again at a future WCICON!
Excellent article. I agree that it is unlikely that Social Security will go away entirely, but I think it is fairly likely that there will be a means test applied, as you mentioned: “The test could completely eliminate benefits for those exceeding some threshold or phase out benefits as income and/or assets exceed the threshold.” If I am in that group, Social Security is effectively gone for me.
That sort of change would definitely go against the spirit of Social Security which has always been that everybody gets something.
Thanks for reading and for the comment.
It is certainly possible WCIers could amass enough wealth that a future Social Security means test completely disqualifies them from any benefit though I agree with Jim that is unlikely. Part of my point in writing this post was to encourage people to ask themselves “How much am I willing to give up in spending now (increasing savings rate) and/or how many years am I willing to add to my projected work timeline to adjust for my personal beliefs about social security?”.
Different people will answer that differently, I just want everyone to go through the exercise.
For a fascinating conversation on this topic and tax policy in general I recommend the following podcast. If you want to jump ahead to the entitlement reform part you can start at the 49 minute mark:
https://freakonomics.com/podcast/ten-myths-about-the-u-s-tax-system/
Thanks for the link! Some very interesting content–makes it clear why reducing the annual federal deficit to a manageable level will be very difficult to achieve.
Good article but did you or I mess up on the math? You indicated retirement expenses of $150,000 per year. 25X would be 3.75 million. You indicate if social security went away,. You need to save another 1.3 million. Wouldn’t you still need 3.75 million? but if you include Social Security, you only need 2.45 million.?
Tyler thanks for reading and making this astute observation . This reveals a different point I alluded to in the post but I didn’t want to expand on in hopes of keeping the post short-ish and not losing my broader point.
Short story – You are not wrong.
Slightly longer story – The 4% safe withdrawal rate includes all expenses including taxes. However, despite all my financial planning nerdery, I must face the humbling and pragmatic truth that I have no idea what my tax situation will be in retirement (and neither does any other “young” person). This is part of what makes the pre-tax vs Roth question so complicated and ultimately unknowable.
So I just think it’s easier/reasonable/pragmatic to think about how much I want to spend in retirement ($150,000/year) and plan to save up 25x that amount ($3.75 million). I then plan on having Social Security cover the any taxes I owe on pre-tax account withdrawals (income tax) and taxes I owe on the sale of appreciated securities in my taxable brokerage account (capital gains taxes).
Thus, if I were to ignore Social Security I would need to increase my nest egg to account for the additional tax payments and still be able to spend the $150,000 we want to spend. I don’t know that I would have to increase the nest egg by $1.3 million, that amount was just the cost of a SPIA that would pay $70,000 (a Social Security replacement). What I would actually do if SS was gone, is wait until 67 or 70 to see how much my tax burden is likely to be and buy a SPIA at that time to cover the tax costs.
Is it perfect? No. I’ll obviously adapt and dial in the landing when I get close to the retirement airport in 20-25 years.
Is it reasonable? I think so. I am about 3 hours into my 12 hour trans-Atlantic nest egg building flight, I don’t have to know exactly what runway I’m going to land on yet.
Makes sense with the way you calculate. I calculate a little different so lead to my conclusion. I include taxes in my expenses. I figure using current tax rates and then adding taxes onto my desired spend to calculate how much I need. I then subtract expected social security (x70% assuming a decrease in payouts and is my safety cushion). Then multiple that remaining amount by 25x. Different ways of thinking that cover the same process.
Great quality article! And fun to read.
Thank you for reading and for the positive feedback. The notion that something about Social Security could qualify “as fun to read” to anyone is a profound compliment. You made my day, thank you.
I’d like to suggest a seventh solution— quit funding Social Security using a “trust fund”. Congress could easily pass a law to fund all future Social Security benefits from general revenue. This is how we fund other national priorities after all, like the Pentagon and interest on Treasury bonds. It’s important to distinguish between an actual funding crisis and a manufactured one.
Shouldn’t your wife’s S.S. benefit be half of yours due to spousal benefits?
In short, yes, you are right.
If you look at the Recommended Strategy I copied from Mike Piper’s tool it shows my wife taking her benefit at age 62 and then her spousal benefit (half of mine) at 68 right before I start taking mine at age 70 (I am 22 months older than her). Having the lower earning spouse take their benefit as early as possible and then switching to the spousal benefit BEFORE the higher earning spouse takes their (delayed) benefit is a common strategy to maximize household benefits.
This illustrates one of many rabbit holes I avoided going down in this post. For simplicity I just used our projected benefits given the difference between hers and and half of mine is less than $300/month. If I had included that extra value of her spousal benefit it only strengthens the broader point that “social security is really valuable and ignoring it has significant costs.”
Thanks for reading and taking the time to comment. Both are much appreciated.
A couple of points regarding your strategy:
1. One cannot apply for spousal benefits if the spouse has not yet applied for their own benefits.
“It’s important to note that you cannot claim spousal benefits until your spouse has filed for his/her own retirement benefit.” Mike Piper. Social Security Made Simple
2. Your wife’s spousal benefit will NOT be 1/2 of yours if she claims her benefit early.
“…that reduction continues to be relevant even after her benefit as a spouse has kicked in.”
Mike Piper. Social Security Made Simple.
Thanks for an excellent article! Believe it or not, this is my favorite personal finance topic…
*Just noticed that eyedoc had very similar comments. I’ll leave in my comments as some might want to see Mike Piper’s quotes. Mike’s the ultimate authority on these issues.
You’ll be excited to hear he’ll be at WCICON next year then.
Outstanding! Thanks for letting me know!
Excellent, thoughtful article with a nice, concise review of the most common proposed options to salvage SS. I just make a vague assumption that my wife and I will get something, possibly less than I expect now but probably still a good percentage (I’m 61), and probably better than what younger workers may receive at their retirement.
Nice article as always Tyler! do you think the fact that you can’t get an inflation adjusted annuity is a sign that the actuaries believe social security’s inflation adjustment is invaluable and favors delaying as much as possible? It always amazes me that no insurance company want to assume that inflation risk, and that it takes an entity that prints money to give you and inflation adjusted annuity. Has there been precedent in the past where insurance companies went under because of their inflation adjusted annuities, perhaps during the 70’s and early 80’s?
Thanks for reading Rikki and for consistently taking time to contribute to the conversation.
I don’t know why insurance companies don’t offer inflation adjusted annuities or if providing them in the past has lead to any disastrous outcomes for them. I know they are for profit entities and profit motives drive the majority of their decision making so Capitalism 101 leads me to believe they must not think they can consistently make money selling those products (or they can make more money by having everyone buy the current products).
These are interesting questions. Perhaps someone from the insurance world can provide more clarity or greater insight.
Tyler,
Your wife can’t start taking her spousal retirement benefit before you apply for your benefit. And if she starts taking her own benefit at 62, her spousal benefit will be reduced relative to what it would be at her FRA.