Plan Conservatively When It Comes To Social Security

Special Report:Race To Retirement

While you know Social Security is in trouble, it's harder to know what you should expect -- namely, dollar amounts -- from the system.

Sure, the Social Security Administration provides an estimate for what you'll get when you reach full retirement , suggest not getting too caught up in all these guesses. He questions their strategic value for anyone deciding on what they should save.

Zeroing In

Tresidder recommends planning to receive 0% to 30% of your retirement income from Social Security. Americans in their 20s and 30s might want to go ultraconservative and plan on zilch, he says, while those closer to retirement can focus on the high end of that range.

"If you're young, you're far better off to assume zero," he told IBD. That gives you "a little wiggle room," and whatever you get can be "bonus money."

What are those other government estimates? Well, the Congressional Budget Office says that on average, someone retiring today at 65 will receive 43% of his average annual income. For the top 20% of earners, it'll be 29%, while for the lowest 20%, it'll be 71%.

However, the Social Security Administration said last April that its trust fund would run dry in 2033.

So people in their mid-20s to early 30s (i.e., born in the 1980s) should expect to receive 35% on average, the CBO says, not the 41% of their average annual income that they'd been scheduled to get. For the top 20% of earners, it'll be 24%; for the lowest 20%, it'll be 60%.

What if you want a second opinion? Social Security Administration actuaries show other scenarios based on a plan developed by the Simpson-Bowles fiscal commission. Many see that 2010 report as a more realistic take on how Social Security benefits will shrink.

These actuaries say high earners born in 1980 and retiring at 67 in 2047 will receive 34% of their average annual income; medium earners, 41%; and low earners, 55.3%.

The commission defines a higher earner as someone making 160% of the average, while low means 45%.

Again, Tresidder cautions against putting too much stock in "statistical gobbledygook."

He says even if you're in your mid-60s, keep in mind that you have a chance of living into your 90s. A lot could happen to Social Security over the next 30 years.

Tresidder added that he's not a "gloom and doomer on Social Security." It's not realistic to think that politicians would let the system vanish, he said. "But to say that its purchasing power in real terms is going to get diminished through every mechanism that they can legally pull off is totally real. It's already happening. And to say that means-testing is a potential next step is also politically palatable."

Means-testing refers to checking whether individuals have resources sufficient that they don't need assistance. Critics say that approach would discourage savings.

Don't forget that benefits reach a maximum. A worker who retired at age 66 in 2012 faces a cap of $2,513 a month.

Waiting For More

Also remember: You'll receive more from Social Security if you delay collecting. Someone who's 66 today could see her benefit (dubbed the Primary Insurance Amount) go up by 32% if she waits until age 70 to begin receiving it.

It might seem like it's best to delay and maximize your benefit, but Tresidder noted that you get only so many years when you're active: "This is about a fulfilling life, not just that maximum number."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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