There is a lot of talk about fixes, changes, and adjustments to the way Social Security is set up and handled right now, but what if it just went away? And when I say "away", I mean away completely. How would people respond and react, and how would their financial lives change? How would our family respond and react?
Most people probably haven't really thought about this possibility much because for as much as they like to say Social Security won't be there for them in retirement, I'm not sure they really believe it. If they did, I think they'd be considering things along the lines of the following financial adjustments that our family would probably make. However, it's an interest concept to consider, and one that would have us immediately changing how we're planning for retirement.
Immediate Re-evaluation of Our Retirement Plan
Right now, I base my Social Security assumptions upon 75 percent of the Social Security Administration's estimated value of my future benefits. Since they are estimating that without changes they will only be able to pay this amount anyway in a couple of decades, I figure I'd better make the call to start estimating on the safe side if the SSA isn't willing to do it for me.
Even then, I'm still basing part of my retirement plan on the assumption that Social Security will still be there in a significant (yes, I consider 75 percent significant) amount. However, if it were to go away completely, I would have to take immediate steps -- at whatever point in my life I was in -- to alter this assumption and re-evaluate, and likely readjust and rebalance my retirement plan.
Rebalance of Retirement Portfolio
If Social Security were to go away completely, I'd likely have to rebalance my retirement portfolio. Right now, I have my retirement account set toward a low-risk income fund. Personally, this works for me since I'm not comfortable with high levels of risk, I don't really like the stock market, and I plan to work into my later years. However, while I'm not counting on Social Security for all of my retirement income, it would be nice to have it meet at least 50 percent of my income needs. I say it would be nice…but I'm not counting on it. If it were completely out of the equation though, I might need to bump up the risk level of my retirement portfolio in an attempt to increase earnings, although I think I'd still leave a significant portion (I'd say at least 50 percent) in my low-risk income fund.
Adjust for Extra Income
Not everything would be lost though if Social Security were to go away. I would hope that without Social Security, there would no longer be a Social Security tax. This means that I would receive a larger portion of any income I generated, and as a self-employed individual who pays both sides of this tax, that would be a substantial amount. We're talking both sides of what will likely soon be back to a full 6.2 percent tax rate on employee and employer (me and me). That equates to a total 12.4 percent of each dollar. Think of it this way, for every $1,000 I earned without that tax, it would be an extra $124 (I guess a bit less after I paid federal and state taxes on it of course) in my pocket to invest or do with as I please.
Even though I plan to work part-time well into or even through the entirety of my retirement (just because I like being productive and the sense of fulfillment that comes along with working), without Social Security, this would likely become more of a "must" than just a "would like to" type situation.
Not only would I probably have to do this for the additional income, but it might even come down to the insurance side of things since if they ditch Social Security, I tend to wonder if Medicare would go with it. And while I like working, I also like working on my own terms, and having to get a job with employer-sponsored health insurance would unfortunately not be on my own terms.
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