If you are a younger investor—in your 20s, 30s, or even 40s—how do you factor Social Security into your retirement savings equation?

This is an important question for younger investors, and a topic that is hotly debated. You have no doubt heard the admonition that young investors must be as aggressive in their savings as possible, because their full Social Security benefit may not be there when they need it.

But what does that mean, exactly? Is it safe for younger investors to assume their full benefit will be available to them when they enter their golden years? Or should they estimate that there will be only a reduced benefit? Here we explore some realistic scenarios for Social Security that a younger investor can embed into their financial plan.

How Do I Determine My Benefit?
Determining your estimated monthly benefit amount will involve creating an account at if you have not already done so. (It is actually pretty quick and easy to set up an account.) Here you can see your estimated monthly benefit, in today’s dollars, based on your actual earnings history. This estimated benefit might seem very low, but do not worry: This is only the first step. These estimated benefits assume that you will continue to work and make about the same as you did in recent years in every year until you retire, and they do not factor in any cost-of-living increases. For that reason, these estimates are more helpful the closer you are to retirement.

Next, it is time to get a more accurate picture of what your retirement benefit will be decades from now. For purposes of illustration, consider as a hypothetical example, Martha. Assume she was born January 1, 1980 and entered the workforce in 2002, with a starting salary of $40,000 a year. Assume she got a 2% increase in salary in every year, but switched jobs to a higher-paying position in 2006 ($55,000), and then again in 2010 ($75,000). Then in 2015, she took a job paying $100,000. If this information is plugged into the Quick Calculator on it shows these estimated payouts for Martha, in inflated future dollars, based on the age at which she decides to collect benefits. (Note: Social Security’s Quick Calculator gives you the option of viewing your estimated benefit in today’s dollars or inflated future dollars. We are using future dollars because the final step outlined in this article, which involves using another calculator to determine your ideal preretirement savings rate, requires that you input your Social Security benefit in future dollars.)


Age 62 Age 67 (Full Retirement Age) Age 70
$4,964/month $8,275/month $11,337/month


Source: SSA, Morningstar Calculations

As shown above, her early retirement benefit if she applied for benefits at age 62 is about 70% of what she would get if she waited until her full retirement age of 67, which is only 87% of what she could get if she waited until age 70.

How Much Will Be There?
According to the trustees’ report, Social Security’s trust funds will have solvency through 2034. But that does not mean that Social Security benefit payments will disappear completely.

“A lot of times you’ll hear ‘Social Security bankrupt in 2034,’” said Andrew Salata, a public affairs specialist with Social Security. “[But] bankruptcy is not the complete picture because Social Security after 2034 will still have payroll tax dollars. We will have used up our trust fund, our extra money that we’ve been collecting.

“So if nothing changes between now and 2034, we still will be able to pay out Social Security benefits, but it will be at a rate of 79% because that is what our payroll tax dollars will cover. So in effect everyone will receive 79% of their benefit.”

Should you assume that your benefits will be reduced by more than one fifth? Applying the 21% haircut to Martha’s estimates yields:


Age 62 Age 67 (Full Retirement Age) Age 70
$3,922/month $6,537/month $8,956/month


Source: SSA, Morningstar Calculations

Columnist Mark Miller believes that it is unlikely that “nothing will change,” however. He and others believe there are plenty of levers available to Congress; rather than cut benefits radically, Congress is more likely to impose some sort of means-testing on benefits, adjust the amount of income that is subject to Social Security, or increase full retirement ages.

“Seventy-nine percent assumes no action by Congress to fix the gap,” Miller said. “So, it depends somewhat on your forecast on what Congress will do. My opinion: There is zero chance that this will not be addressed and repaired. Why do I say this? Can you imagine any legislator wanting to go back to retirees in his/her district to explain why he/she permitted a 20% cut in their benefits to occur?”

Nonetheless, many financial planners do recommend taking the conservative tack of assuming a reduced benefit. After all, it is better to be safe than sorry with retirement savings, as there are no loans available to fund retirement.

“From our perspective if [a person is] under 45, we use a one-third deduction in the benefit that comes out of or what some of the calculators suggest would be the benefit,” said one financial planner. Though he says this estimate can vary depending on other individual circumstances, “in the standard setting for running projections, we reduce it by a third.”

So, reducing by one third, Martha can incorporate a monthly benefit of $5,647 (adjusted for COLA increases) into her savings plan, which will certainly require her to increase her savings rate.

How Much Should I Save?
By being able to estimate Martha’s Social Security benefits payable in 2047, Social Security can be incorporated into her financial plan to come up with a savings rate that makes sense.

The Social Security website recommends another calculator you can use to run a simulation. This one is called Ballpark E$timate from It is a simple calculator, but it is helpful because it allows you to control the inputs: You can customize the inflation rate, annual salary growth rate, and the return rate you expect to receive on your investments both before and during retirement. You can also run different scenarios to determine your target savings rate—with the full Social Security benefit, and with a reduced rate.

For Martha, assume the following inputs:

  • She is planning to retire at 67, and wants to replace 80% of her income
  • For her life expectancy, use the number supplied by the Social Security Administration; for a person born in 1980, at full retirement age of 67, life expectancy is around 87 years for males and 89 for females
  • Assume an annual 2.9% inflation, an annual wage growth assumption of 4%, and rates of return both before and in retirement of 7%
  • Assume Martha has already saved $100,000 for retirement in her 401(k) or another defined contribution plan

(Note: Using higher numbers for inflation and wage growth will result in a higher target savings rate, while putting in higher numbers for the expected return will result in a lower target savings rate.)

With the full Social Security benefit of $8,275, the Ballpark E$timate Calculator suggests that Martha can expect to replace 47% of her final wages including income from Social Security. The calculator recommends that she save 11% of her total salary to get to her desired 80% income replacement rate. If her Social Security benefit is reduced by a third to $5,517, Martha can only expect to replace 37% of her preretirement income. In this case, the calculator suggests that she increase her savings rate to 14% of her total salary.


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