America’s crown jewel government retirement program, Social Security, has been mismanaged. Assets, many of which have been “borrowed” by governments over the years are insufficient to pay promised benefits in the future.

How Much Should You Expect from Social Security?

In planning retirement, it is important to consider this government mismanagement.

Some advisors say people should expect this government entitlement to be no more than 10 percent of the income of a retirement. Others say five percent. And some advisors tell clients that they should plan on getting nothing from their decades of tax payments into the system.

A Retirement Puzzle

It is an anomaly. If you have developed considerable private saving resources, this person shouldn’t expect much from Social Security, a program whose assets and liabilities are often debated.

That’s because Social Security already has been mean tested and will likely face more means testing as the program, now running in the red, is debated.

Social Security, says Michael Kitces, says an advisor in Maryland, is “already means tests; fully included in how Social Security benefits are calculated today.”

The only question, he says, is how much more will it be means tested. Kitces believes that it is inevitable that those who have substantial assets will see their benefits reduced and he incorporates that into his retirement planning.

Could some government, facing a funding crisis, decide that the well-heeled get no Social Security benefits? The program’s red ink will likely continue. So what is someone facing retirement to do? Most advisors say clients shouldn’t expect a lot from this retirement program.

“I think it is best to be conservative about Social Security. One should err on the side of not expecting a lot from it,” says Charles Hughes, an advisor in Bay Shore, New York.

“I think your Social Security should be no more than 20 percent of your projected retirement income,” he adds. “If you are expecting that it is going to be 50 percent or more of your retirement income, then I think you have more than an economic problem, you have a life style problem.”

Ignore Good Advice

Yet many clients, or would be retirement clients, aren’t going by Hughes’ standard.

Indeed, according to a Social Security 2017 Fast Facts report, “Social Security was the main source of income, providing at least 50 percent of total income for 50 percent for aged beneficiary couples and 71 percent of aged non-married beneficiaries. It was 90 percent or more for 23 percent of aged beneficiary couples and 43 percent of age non-married beneficiaries.”

However, for those who are expecting Social Security to be a large part of retirement income, say 50 percent, there are questions over whether their retirement years will be golden.

What should retirement advisors and the rest of us, many without advisors, do?

Be Conservative in Depending on Government

“Albeit conservative, it may also be prudent to exclude Social Security for those with likely taxable income of $250k (present value) or more in retirement,” says Mark Friedenthal, who runs a software firm in New Jersey that works with retirement planning advisors.

“This is likely a client with $10 million-plus in taxable assets or $5 million-plus in traditional IRA/401k assets,” he says, “or substantial defined benefit pension income or other taxable income sources.”

Social Security won’t die, Friendthal predicts, but advisors should make adjustments in retirement plans, expecting that clients will receive less than planned. He says retirement advisors should plan for Social Security based on age 50.

Kitces agrees that advisors should expect less, especially for those who have considerable retirement resources.


Social Security trustees say the program has its problems.

SS Problems Expected to Continue

An unrealistic Social Security benefit formula is driving “perpetual deficits,” writes Stephen J. Entin in a new Tax Foundation report. This red ink was documented in the 2018 Social Security Trustees report.

Last year, in the Social Security Trustees report, the highlights section says the system was running in the red for the first time since 1982 and that red ink is likely to continue in the near future.

“Under the Trustees’ intermediate assumptions, Social Security’s total cost is projected to exceed its total income in 2018 for the first time since 1982, and remain higher throughout the projection period. Social Security’s cost has exceeded its non-interest income since 2010. For 2018, cost for the program is projected to exceed total income by $2 billion and non-interest income by $85 billion. As a result, asset reserves will decline during 2018.”

Entin says the system can be fixed by changes in benefits formulas. However, until reforms are enacted, not enough American workers are entering the system to keep promises made to Social Security recipients.

Not Enough American Taxpayers

“The native population fertility rate is well below replacement levels. The replacement rate is an average of 2.1 children per woman over her lifetime. The current fertility rate is under 1.9. The Social Security actuaries are hoping and assuming it rises to 2.0 in their best-guess assumption set, but that may be wishful thinking,” Entin writes.

Those preparing for retirement must take Social Security’s problems into their calculations.

“The demographics and the promised real benefit increases are why the system is projected to run larger and larger deficits. There are just not enough future workers to pay into the system to maintain that pace of real benefit growth,” Entin writes.

The well off, those with significant retirement income, are an obvious target for future cuts. But another advisor says unrealistic expectations about Social Security could also hurt others at the other end of scale. Those without significant private retirement savings are running a big risk.

“Generally, I don’t want to see someone have more than 20 percent of their retirement incoming from Social Security,” Hughes says.
“Some actually are depending on 50 percent of their income to come from Social Security.” That’s a figure he finds unrealistic.

“When people tell me they expect Social Security will be half of their retirement income, our discussion takes a different tack,” Hughes says.
“I tell those people that they will have to consider a lifestyle change; that is very difficult to construct a retirement plan when so much is dependent on Social Security.”

Hughes fears that, with Social Security deficits continuing, some years there will be no cost of living adjustments.

We need to anticipate problems with Social Security in the next decade, he adds. These problems could change the assumptions of retirement planning, according to Hughes.

“If Social Security is reduced,” Hughes says, “we may well have to re-examine our assumptions about an initial four percent withdrawal rate in the first year of a retirement plan.”

Meanwhile, the best advice I have heard for those about to retire or who even have many decades to go before retirement is to develop significant private savings.

Who knows what will happen with Social Security?

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Gregory Bresiger
Gregory Bresiger

Gregory Bresiger is an independent financial journalist from Queens, New York. His articles have appeared in publications such as Financial Planner Magazine and The New York Post. The eBook version of his latest book "MoneySense" is available now for Free Download by clicking HERE

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