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The Employee Benefit Research Institute, surveyed 3,600 retirees in 2024. The survey found younger retirees were much more reliant on Social Security than older ones. The oldest retirees, ages 74 and 75, reported that 52% of their income came from Social Security. The youngest, ages 62 and 63, said they drew 67% of their income from the retirement trust fund.
What is that telling us? Older retirees are more likely to have a pension. Younger retirees are not accumulating sufficient retirement assets? Social Security may be more important than we may think?
Our combined gross SS benefits equal about 20% of total income, including investment income. What is a reasonable percentage, if there is one?
I queried an AI (in this instance, Perplexity) whether person X’s RMD should be included as income along with Social Security retirement benefit, portfolio earnings, and annuity payments. I stated that the calculation is to determine not what the taxable income total is but simply what percentage of income the Social Security benefit represented in the budget. The answer was yes.
When I edited the query to include that X does not need the RMD and donates it as a QCD, the answer was no.
So to this AI, at least, and I’m guessing also to HD readers’ minds, it’s all about definition and context.
So, what if a QCD is not used but same amount is donated to charity post distribution? I suppose using the QCD you never get your hands on the money given it goes directly to charity, but that seems a technicality. In my mind the entire RMD is income just a matter of how it is used.
Yep, that’s my point. You see it one way. Depending on definition and context, someone else might see it another way. That doesn’t mean one way is right and the other way is wrong.
I am delaying SS to 70, my wife to 67. When we get there SS will start off at 62%. At 80, it will be 40%. (I’m including RMDs in income-just like our FA does in our financial plan projections from which I am getting this data-regardless of whether or not we spend any of it.) We have 3 small pensions, I will have some deferred comp 70-80 and then our QLACs kick in. All this is income is non investment sourced, low risk or “guaranteed”, even the RMDs which are in TIPs held to maturity. The deferred comp is in an Annual Interest Rate fund. Our FA excludes market based investment income from these calculations since they are unknowns-if we were to include that the SS percentage would of course be lower. Nevertheless SS is foundational to our retirement plan. Would would be OK with out? Probably? Maybe? But some significant planning changes and perhaps lifestyle adjustments would be required.
SS will be 11% at retirement next year. Only one of us will be claiming at that time, we both are claiming at 70.
Looks like I am right in their assumptions area.
No Pension Income.
Social Security Benefits for wife and me total $74,340 (Gross) After Voluntary 10% W/H and Medicare part B Premiums, $62,910.
Annuity Income totals $36,560 (Funded with Roth dollars primarily, 78% Income Tax Free)
Vanguard 4% annual withdrawal, taken monthly, $21,630 (LTCG – 0 Bracket)
Total Income – $132,500 or $121,100
Social Security – 56.12% or 61.38%
Due to proper planning, 0-10% Income Tax Bracket.
As mentioned by MyTimeToTravel, I do not count RMDs. 1. It was already my money and 2. I take most of it as QCDs.
Not counting RMDs as income befuddles me.
Even if you use QCDs as I do for some, you would have used other funds for charity, no?
Aren’t earnings part of the RMD, this not your money as such? If you use any of the RMD toward your lifestyle expenses I can’t see how it is not income, taxable or not.
So, if you lived on SS and RMDs, SS would equal 100% of your income?
It was income when you made the initial deposits. Interest and dividends were income in the years you received them. As far as I am concerned I own the contents of the account the RMD is coming from and therefore it is not income, certainly not if I don’t spend it. If I moved money from one fund in my tax sheltered account to another would you consider that income? Why is moving it from a fund in tax-sheltered to a fund in taxable different?
What if you don’t use any of your RMDs or only a portion of them for current expenses?
What if you didn’t use part of your salary, was it income? I don’t use SS for current expenses and it still looks like income on my tax return. Doesn’t a RMD count in MAGI?
Mr. Quinn, you might want to read this: https://www.investopedia.com/terms/i/income.asp
Good conversation. I was especially interested in Rick’s and Dan’s comments working with doing taxes for seniors. I can vouch for being one of the younger retirees who don’t have much in pensions. We are just getting into starting SS this year so I am not sure how much it will be of our income, but sure it will be more than the 40% that is supposedly the “traditional” amount of working income it replaces. It will be interesting to see as we grow older if it will be more or less of our total income. I know it is an important part of our parents’ incomes, who are all in their 80s. So far my math is saying our SS and small pensions will cover most, if not all, of our basic expenses. I am grateful for SS. Chris
This is slippery, as it depends on your definition of income. It will also change over time for those of us with non-COLAed pensions. I expect my SS payment to exceed my pension payment in the next few years.
Meanwhile, I do not consider my RMDs income, as they are money I already own and am simply moving between accounts. Similarly, interest and dividends are automatically reinvested. I prefer to look at what percentage of my portfolio I need to withdraw.
If I add interest and dividends on my taxable accounts, my RMD and SS and pension for last year, SS was 27%. However, if I add the withdrawal from my portfolio, SS and pension, SS was 44%.
Either way, SS is a critical part of my financial plan.
stelea99 makes a very good point about the definition of income. It would be more interesting, perhaps, if they asked what percentage of living expenses did SS cover. At the lower end of the economic scale, paying your bills is what matters, wherever the money comes from. I have a friend, a single retiree, whose GE pension covers all his modest expenses. Fifteen years after claiming, he has never spent a dime of his SS, much less his extensive Vanguard accounts. To him, the question has little meaning.
These studies are interesting, but you are not providing the definition the study authors used for total income. Was it taxable income, pre-tax income, did it include dividend income from Roth accounts, what about muni bond interest????
Without the definitions, how does one know how to do the calculation?
Never thought it that complicated. Income is income, taxable or not. It you can spend it, its income. My percentage is based on every possible source of income I have even if I don’t actually use it as income.
“If you can spend it, it’s income”
You can spend the entire contents of your portfolio, that doesn’t make it income.
Since you were not a participant in the study, your personal definition of income is not material. You didn’t design or conduct the survey. Without the survey definition, one cannot compare their personal situation to the survey results. This is a very fundamental concept. One cannot assume that everyone else thinks/believes or has the same values or should have the same values.
SS is about 35% of our annual income.
In 1 year, when my wife takes SS at FRA, that will be 13% of our total income. When I take SS at age 70, our combined SS benefits will be 34% of our total income. That’s a nice supplement to our pensions and investments!
I’m not sure what to make of the survey results other than the obvious conclusion – SS benefits are a vital income source to many retirees. It was the majority of my parent’s retirement income. It was about 50% of my in-law’s retirement income, including pensions, RMDs, and dividends and interest.
Having prepared income tax returns for the past 6 years for mostly seniors, I have a bit of insight into this. This is all anecdotal, but the older clients (74-75) seemed more likely to have some pension income. For many of the clients SS was the majority, if not all, of their income. Retirees seemed to find ways to cobble together a retirement. Some continued to work, some lived with their children, others shared housing with siblings, cousins, and friends. Without SS, many of these folks would have been in serious financial trouble.
My anecdotal observations after preparing thousands of tax returns is the same, except here in Toledo where the COLA is relatively low, not very many lived with family.
My parents lived solely on Social Security. Their only extra was 75 shares of my employer stock and the dividends were used by my mother to buy presents for grandchildren. Even today that would amount to $180 a year. They lived with my sister’s family. My mother in law had even less. But I never heard them complain.
In Mark Miller’s Retirement Revised newsletter (which I highly recommend everyone at HD sign up for) he notes that in a study released last month:
https://www.nasi.org/research/economic-security/social-security-at-90-a-bipartisan-roadmap-for-the-programs-future/?utm_source=substack&utm_medium=email
Here’s the key finding: the public shows a clear preference for revenue enhancements over benefit reductions. An impressive 85% of those surveyed advocate for maintaining current benefit levels, even if it necessitates tax increases for some or all Americans. The most favored approach involves eliminating the payroll tax cap for individuals earning above $400,000 annually. Additionally, there’s broad support for gradually increasing the payroll tax rate to bolster the program’s financial health, a sentiment that spans nearly all demographic and political lines. Conversely, proposals that involve reducing benefits are met with significant opposition. Options such as raising the retirement age further or adopting a slower cost-of-living adjustment formula are largely rejected by the public.
Out of the four cohorts of age, income, political affiliation and education the lowest level of support was from Republicans, and even they had 74% support.
So why are politicians so afraid of attacking the problem?
David…EXCELLENT COMMENT.
I have felt for a number of years that if Congress wanted to solve the problem, they would have. Historically speaking, Congress is very fond of waiting until the last minute and coming up with a poor solution, be it Social Security & Medicare issues or the Annual Federal Budget.
As you mentioned and the article mentioned, as well, the solution is a combination of Lifting the Cap on FICA and gradually increase the FICA Tax Rate.
Reducing benefits is not an option, especially considering that to do so would be like asking to not be re-elected…and we know how Congress feels about that!
“An impressive 85% of those surveyed advocate for maintaining current benefit levels, even if it necessitates tax increases for some or all Americans.” I have not read this specific report. However, I do suspect that retirees favor tax increases over a benefit reduction, merely because it is assumed that they would get favorable tax treatment. Benefit reductions could impact everyone.
If you read the report – or just the Executive Summary – you will see that it included Americans from 21 up, NOT just seniors.
Just the other day I checked my online SS account and discovered that my payments are on hold! After hours of research I’m learning that a mistake was made during a “periodic review” of my account. With the threat of losing that leg of my 3 legged stool, my social security is of utmost importance right now!
Do RMDs count as income? If I’m not spending them? If I am spending a percentage, just that percentage?
My RMDs are included when calculating taxes, so yes, I do count them as income. I do exclude my Roths because I’m not taking withdrawals from those accounts.
sure they are income. What we do with income is secondary to the question isn’t it?
But it is money I already own. I simply move it from a tax-sheltered account to a taxable account. Until I moved to a CCRC my expenses were less than my SS and pension combined.
This is why the definition of what is “income” is important.
SS is 69% of total income and pays for everything, with one temporary exception. In the last 2 years we used much of the excess income on a new home. Those expenses are now behind us, and that excess income is replenishing cash reserves. Like Humble Reader below, I waited to age 70 and have a pretty fat SS deposit every month.
Fascinating. In all likelihood Americans’ preparedness for retirement isn’t improving from there. I (age 45) will be counting on it for 0% of my income. If it comes through I’ll be even fatter and sassier than I already am.
Do you seriously think any politician would let SS disappear?
By doing nothing, we’re lurching toward that reality, not by desire, but inertia. What I’ve seriously thought about is the state of our countries’ finances. We have a tremendous will to pay for a lot of things, just not enough money to do so. Eventually (probably soon) we’ll run out and difficult choices will need to be made since no one wants to do it now.
Do you seriously think anything is beyond this current leadership?
Our combined Social Security is 62% and covers 100% of our non-discretionary spending. The other 38% is interest/dividend income and planned IRA distributions used for the much more fun discretionary spending. No pensions. No debt. Waited to 70 for my Social Security. Retired at 71. Living a moderate life style in a moderate size house in a moderate cost of living area.
Our SocSec is 43% of our total income.