Coast FIRE and Social Security: Maximizing Future Resources Now

Coast FIRE and Social Security can feel like a confusing collision of two worlds. Coast FIRE is all about reaching financial freedom sooner than most Americans dream possible. Whereas Social Security likely makes you think of your parents or your grandparents! But there’s some really important overlap between the two concepts.

Stick with us as we break down everything you need to know about Coast FIRE and Social Security.

Before you take a look at how Social Security can overlap with your Coast FIRE planning, you want to understand the Social Security basics. Dive in below!

A lot of people ask themselves, Will I even get Social Security?

Let’s get the doom and gloom out of the way. While it’s possible Social Security benefits may change, they aren’t likely to completely disappear anytime soon–despite what news headlines might try to tell you.

It is true that the Social Security Trustee’s 2024 Report estimates that retirees may only receive 83% of their benefits starting in 2035 if Congress doesn’t take action.

No one has a crystal ball to know for sure what action the government will take if any. Whether you receive the full promised amount or a portion of it, it is still important to know generally what Social Security is based on.

Each year that you work and pay into Social Security, you earn work credits. You can earn up to four work credits a year.

Another important consideration is whether or not you’re also participating in something that would reduce or preclude you from receiving Social Security. For some government employees, some educators, people working outside of the United States, or other unique situations, you may receive a reduced Social Security benefit. This is due to the Windfall Elimination Provision (WEP).

To get the full scoop on Social Security Benefits, check out the Social Security Administration website.

You can ballpark your Social Security benefits after considering two factors. In 2024, the maximum Social Security benefit amount upon reaching the full retirement age is $3,822. However, it’s important to remember that amount is the maximum amount. To hit that number, you would need to earn the maximum taxable amount throughout 35 years of work.

A more helpful consideration is the average benefit amount. Thanks to a sizable cost-of-living adjustment, the average benefit amount for all workers in 2024 is $1,907.

Other factors that influence your Social Security amount include:

Your earnings history
The year of your birth
When you start collecting Social Security
Cost-of-living adjustments
Your spouse and their earnings history
Where you live

Additionally, your Social Security benefits may also change if you continue working and if you receive any additional income.

Coast FIRE means that you have enough money set aside for retirement now that you can stop future contributions. Thanks to the power of compound interest, you can essentially coast into retirement.

Having a basic understanding of the Social Security benefits you might receive should help you feel more secure in your Coast FIRE strategy. Of course, you want to remember that Social Security is designed to support your retirement income–not be the only source of it. Instead, you will likely rely on your 401k, Roth IRA, taxable brokerage, and other sources from your retirement portfolio.

Still, there are several ways that you can factor Social Security into your plans.

Conservative Approach

Some people choose not to include Social Security benefits into their plans at all. Instead, they treat it as a hedge against inflation, soaring medical costs, or other expenses like end-of-life care that are hard to estimate. By making FIRE plans without factoring in Social Security, they believe their finances are much more likely to withstand the unexpected.

Optimistic Approach

However, another school of thought suggests including Social Security benefits into your plans. There is some disagreement on how exactly to do that. Some people use the benefit estimate on their Social Security statement. Other people take a more cautious approach and use approximately 75% of that estimate, noting the recent report indicating a likely reduction in future benefits.

To get a sense of how this might work, you can take an estimate of your monthly Social Security benefits and multiply by 12. Then, you have a number for the year. Compare that amount to your estimated annual spending to see how much of a gap there is between the money you need each year of retirement and how much Social Security you will receive.

A couple who are estimated to receive $1,500 a month (each) in Social Security–or $36,000 throughout the year–would need to make up an additional $64,000 annually with their investments to cover $100,000 in annual expenses.

There are specific resources you can use for your specific situation regarding Coast FIRE and Social Security. You can use a Coast FIRE calculator along with different Social Security resources to get a much more precise look at your financial future.

Let’s learn more about the tools that can help with Coast FIRE and Social Security planning.

Coast FIRE Calculator

One of the best ways to know if you’ve invested enough for retirement is to use our Coast FIRE calculator. It’s a common question that most people ask frequently as they make their FIRE plans.

You can use our Coast FIRE calculator to run different scenarios to see when you are ready to coast into retirement!

To work with the Coast FIRE calculator, make sure you know:

Your age
An estimated retirement age
Your annual spending
The total of your current invested assets
An estimated investment growth rate
A ballpark inflation rate
A withdrawal rate that you are comfortable with
An estimate of your investment fees

Of course, you can adjust these numbers within the calculator to run different scenarios. It might help you realize you’re closer to Coast FIRE than you think!

Another tool we recommend getting familiar with is the Social Security Administration website. From their website, you can access your Social Security statement.

Many people think that the website is only valuable once you start receiving benefits. That’s not true! There are a lot of useful features that can help with Coast FIRE and Social Security planning.

Visit the website to do these helpful planning tasks:

See a retirement benefit estimate
Get estimates for a spouse
Check that you do not receive benefits
Access your Social Security Statement

If you do not create an account, you will receive Social Security Statements by mail as you near retirement age. Of course, we suggest reviewing them much earlier. In fact, these statements can play an instrumental role in Coast FIRE and Social Security planning.

You can use your Social Security Statement to learn more about:

Retirement benefits: This section details if you have currently earned enough work credits to qualify for Social Security.
Personalized monthly benefit estimates: Here you can see how the age you elect to start your benefits impacts your payout amount.
Disability benefits: This section lets you know how much money you would receive in disability benefits if you were to become disabled this year.
Medicare: Here you can determine if you qualify for Medicare benefits starting at age 65.
Survivor benefits: This section details how much money your minor children and/or spouse would receive in the event of your death.

Additionally, you can review your earnings record and earnings not covered by Social Security. You can also review taxes that you have already paid, including both Social Security and Medicare taxes.

Windfall Elimination Provision

Do you currently work in a role that does not pay into Social Security? This is a situation that certain government employees, educators, or other people find themselves in. As a result, you may receive a reduced Social Security benefit upon retirement.

The Social Security Administration offers a calculator that allows you to see how the Windfall Elimination Provision and your pension might impact your Social Security benefits. You can use the calculator to enter your monthly pension before taxes. Then, you will see the impact on your retirement or disability benefit, as well as the effect on the survivor or spousal benefit.

Social Security shouldn’t be the cornerstone of anyone’s retirement plan. However, it is important to consider how Social Security benefits may positively impact your Coast FIRE plans. Many Americans will be eligible for some income from Social Security. Though it is possible that these benefits will be reduced over time, they can provide an extra support layer to your retirement plans.

Using tools like our Coast FIRE calculator as well as the different resources on the Social Security Administration website can help you estimate how much money you might receive. Then, you can decide if you want to directly factor these into your FIRE plans. Or you can take a more conservative approach. To do this, calculate your Coast FIRE number without the Social Security buffer. But know that if there is an unforeseen event, you will have an additional income stream to rely on.

How does Coast FIRE and Social Security affect your retirement planning?

Please let us know in the comments below.

Coast FIRE and Social Security: Maximizing Future Resources Now

May 8, 2024