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I've spoken with several financial planners who recommend saving at least 15% of income for retirement (media example and this site has an example). They do not include social security, which takes 15% (half I pay, half my employer pays) up to an income limit (around $120-130K).

For people making under that threshold that amounts to saving 30% (15 + 15) for retirement. This sounds like a lot, as that equates to $0.30 being saved for retirement for every $1 earned (granted, employees don't see the part of social security that employers pay, so it only feels like their losing 7.5%).

Is there a reason that financial planners exclude social security in these calculations?

Ms Jackson
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There is no guarantee how much you will actually receive from Social Security. The amount you pay in does not go into an account set aside for you personally.

IamMike
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Social security has a maximum payout of not greater than $3600 per month ($43,200 per year). That figure requires planning and to be a high earner. The average is approximately $1500 per month ($18,000 per year). That average is barely more than the current minimum wage.

Even if you live modestly and retire with no debt that is not much income. Other programs exist to help with medical expenses but most still require some payment. You also have to cover basic necessities with those payments.

Social Security is a safety net and is not currently paying out enough to support a comfortable retirement. Saving for retirement independently of Social Security or other safety net programs makes it far more likely for you to be able to retire the way you want to retire.

Sources:

Freiheit
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Is there a reason that financial planners exclude social security in these calculations?

Well, they should be including SS in the calculations. If you're within 15 years of retirement the calculation is pretty easy. Beyond that it gets tougher, since without any changes most projections predict SS will be unable to sustain the current payout rates. Perhaps beyond 15 years you could only collect 75% of the current amounts, and the farther you are from retirement the more difficult it is to predict how much you can count on.

Also, this is a pessimistic point of view, but many financial planners make money based on how much you invest with them. If they can convince you that you won't be able to count on receiving SS, you'd be inclined to invest more, leading to higher commissions for them. If this theory is correct then financial planners who are paid by the hour rather than as a percentage of your investments would be more likely to consider SS in your overall retirement. (This might be a fun experiment to conduct.)

TTT
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Let's put that 30% into perspective: how many years will you live while retired as a proportion of how many years you worked? If you work about 40 years and will live on 20 years more after you retire, saving about one third of your income sounds just right.

Rad80
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Save 15% is a simple rule of thumb for the average person, who is earning considerably less than the limit. (in 2017, the median income was $56k, in 2014 $120k would put you in the top 6%.)

If you meet with a good financial planner to create a bespoke plan factoring in your personal income, your current savings, the lifestyle you want to main in retirement, your risk tolerance, life expectancy, etc they will come up with a number tailored to your personal situation. If you're earning well over the social security cap, that solution will almost certainly be to save more than just 15% of your current income.

Alternately there are various saving for retirement calculators that can take similar inputs and spit out a number for your situation.

All of the above is far to complex to put into a simple rule of thumb, of the form "you should save X amount".

Dan Is Fiddling By Firelight
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I'm not sure which way you're asking the question.

The financial planners are quite aware of the potential payout from SS when you retire. Their recommended savings plans are (or certainly should be) based on the total expected income from all sources. If your financial planner's accounting sheet doesn't include SS payments in the bottom line, then he is lying to you.

But if all you're asking is "... why save an additional X% after the percentage of SS/Medicare tax..." then the answer is simply that the planners or planning tools are trying to advise you on optional saving planning. You don't have any choice about taxes you pay. You do have a choice on spending or saving your after-tax income.

Carl Witthoft
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