How to Factor Social Security and Pensions Into Coast FIRE

Most Coast FIRE math, including the basic version in our calculator, assumes your portfolio pays for everything once you retire. For most Americans that isn’t true. Social Security will cover part of your spending, and some people have a pension on top of it. The fix is simple, but there are two places where it’s easy to be too optimistic.

The basic adjustment

Subtract the benefit you expect each year from your yearly retirement spending, and use what’s left as your spending figure.

Take Dana, who is 35, has $150,000 invested, adds $1,500 a month and plans to retire at 67. Dana expects to spend $60,000 a year and has a Social Security estimate of $24,000 a year in today’s dollars.

Counting Social Security cuts Dana’s Coast FIRE number by $177,281 and moves the age Dana could stop contributing from 60 to 42. That’s a big enough difference to change real decisions, which is exactly why it’s worth getting the next two sections right.

If you retire before benefits start

The shortcut above assumes your retirement and your benefits start at the same time. Often they don’t. Social Security can start as early as 62, but claiming early permanently shrinks the check, and full retirement age is 67 for anyone born in 1960 or later.

If Dana stops working at 60 and waits until 67 to claim, the portfolio has to cover the whole $60,000 for seven years before the benefit kicks in. A straightforward way to handle that is to add the missing benefit for those years on top of the reduced FIRE number:

1. FIRE number with Social Security: $36,000 ÷ 4% = $900,000.
2. Bridge to 67: 7 years × $24,000 = $168,000.
3. Target at 60: $1,068,000.

That gives Dana a Coast FIRE number of $412,010 at 35, compared with $578,665 if Dana ignored Social Security and retired at 60. This treats the bridge money as if it earns nothing after inflation, so it leans conservative. For a number you’re about to stop saving toward, I’m comfortable with that.

How much of your benefit to count

Three things are worth checking before you plug in a benefit amount.

First, get a real estimate. Sign in to your my Social Security account at ssa.gov. It shows estimated monthly benefits at different claiming ages. Multiply by 12 for the yearly figure.

Second, remember that the estimate assumes you keep working until you claim. Benefits are based on your 35 highest-earning years. If you plan to stop working entirely at 45, some of those years will be zeros and your benefit will come in below the statement. If you’re just moving to a lower-paying job, the effect is usually small.

Third, think about a haircut. Social Security’s trustees have projected for years that the retirement trust fund runs short in the 2030s. If nothing changes, incoming payroll taxes would still cover most, but not all, of scheduled benefits. Planning on about 75% of your estimate is a common way to hedge. For Dana, counting $18,000 instead of $24,000 puts the Coast FIRE number at $310,241, still well below the $443,202 you get by ignoring Social Security altogether.

Pensions

A pension works the same way: subtract what it pays each year from your spending. The catch is inflation. Social Security benefits are adjusted for inflation every year. Many private pensions aren’t.

A $20,000 pension with no increases buys what about $14,882 does today after 10 years of 3% inflation, and about $11,074 after 20. Over a 30-year retirement, its average buying power works out to roughly two-thirds of the face amount. If your pension isn’t indexed to inflation, counting about two-thirds of it is a reasonable starting point.

If the pension starts later than you plan to retire, use the same bridge approach as with Social Security.

Putting it in the calculator

Our Social Security calculator does all of this for you. The main calculator doesn’t have a Social Security or pension field, so there the adjustment goes into the spending box. Take the yearly spending you expect, subtract the benefit and pension income you’re counting, and if you’ll retire before that income starts, add back the bridge amount multiplied by your withdrawal rate.

For Dana retiring at 60, that’s $36,000 + ($168,000 × 4%) = $42,720. Enter that as yearly spending with a retirement age of 60, and the calculator’s FIRE number will match the $1,068,000 target above.