Don't Count on Others to Save You
The Pension and Social Security Reality Check
Note: Today’s post is shorter because I have the flu. I might be away for a bit to recover.
I previously mentioned how I once met a woman on a bus who clutched a fistful of lottery tickets and told me with absolute certainty she was going to be a millionaire. Her retirement plan? Buy lottery tickets every week with her leftover money until she eventually hit the jackpot.
While no one has ever asked me if they should play the lottery for retirement, I get asked constantly whether people should include Social Security, pensions, or potential inheritance in their financial independence calculations.
My answer is always the same: Don't include money you don't control.
Here's why that matters more than ever.
The Social Security Math Problem
The numbers don't lie, even if we wish they would. The 2025 Social Security Trustees Report delivers sobering news: the Old-Age and Survivors Insurance Trust Fund will be depleted by 2033. When that happens, the system can only pay 77% of scheduled benefits.
What does this mean in real dollars? The average Social Security retiree receives about $2,005 per month. A 23% cut would reduce that to $1,544 per month, a loss of $461 monthly or $5,538 annually. For a typical dual-earning couple retiring in 2033, that's an $18,100 annual benefit cut. (source)
The cause isn't mysterious. The worker-to-beneficiary ratio has dropped from 4.0 workers per retiree in 1965 to 2.7 today. As baby boomers retire and birth rates remain low, fewer workers support each retiree. The program faces a $23.8 trillion shortfall in present value terms.
Congress might fix this. They might not. But building your retirement plan around "might" is building it on quicksand.
Chicago: The Canary in the Coal Mine
If you want to see what happens when governments can't keep their promises, look at Chicago. Others have detailed the crisis, but the summary is that after changes last month, the plans are around 18% funded. Experts seem to consider less than 40% funded "past the point of no return." To put this in perspective, Chicago has more pension debt than 43 entire states. (WSJ)
The city's pension crisis affects real people. More than 80% of Chicago's property tax levy goes to pensions, and the unfunded liability keeps growing despite some of the highest property taxes in the nation.
Something has to give, and it won't be the laws of mathematics. When these systems inevitably require cuts or massive tax increases, people who were counting on a specific take-home income will be in for a shock.
Private Sector: When Companies Break Their Promises
Think government pensions are risky? Private sector workers learned this lesson the hard way years ago. In fact, they should have learned it as early as 1963 when Studebaker closed a plant in South Bend, Indiana and left 3,000 workers without a dime from the pension. (source)
United Airlines provides a more modern case study. When United terminated its pension plans in 2005, they were underfunded by $9.8 billion. The company promised $16.8 billion in benefits but had only $7 billion in assets. Workers lost $3.2 billion in promised benefits (an average of $267,000 per employee) with some pilots losing far more.
One retired United pilot with 32 years of service estimated his monthly loss at $2,000, over 30% of his pension. The PBGC's guarantee caps benefits at about $89,000 in 2025 annually, while airline workers' actual pensions were often much higher.
United wasn't alone. US Airways also terminated its pension plans. The airline industry accounts for nearly 20% of total PBGC claims. More recently, Sears Holdings terminated its pension plans in 2019, with $1.4 billion in underfunding.
These weren't fly-by-night operations. These were major American corporations that employed hundreds of thousands of people and made solemn promises about retirement security.
Also, while most private employers have long terminated their pension plans, legacy plans continue to fail in modern times. Check out St. Joseph Health Services.
The PBGC: Insurance with Holes
The Pension Benefit Guaranty Corporation was supposed to protect private sector workers. But when the PBGC steps in, it doesn't make workers whole. The agency has strict benefit caps and doesn't cover supplemental benefits or early retirement subsidies that many workers counted on.
The Pattern Is Clear
Whether it's Social Security, municipal pensions, or private sector plans, the pattern is identical:
Over-promise: Make generous benefit commitments to workers/voters
Under-fund: Don't set aside enough money to pay for those promises
Hope: Assume future growth, returns, or taxpayers will solve the problem
Reality: Mathematics eventually wins, and benefits get cut
The people making these promises won't be around when the bills come due. The politicians who promised generous benefits are retired or dead. The executives who offered rich pensions have moved on. But the workers who believed these promises are still here, and they're the ones who pay the price.
Your Only Reliable Retirement Plan
This isn't about politics or blame. It's about math and human nature. Organizations consistently promise more than they can deliver because the political and business incentives reward short-term thinking.
Your financial independence number should assume you're on your own. If Social Security survives intact, consider it a bonus. If you inherit money, great! You can retire sooner or more comfortably. If your employer's pension plan actually pays what it promises, fantastic.
But your core plan should work without any of these. Build it on what you can control: your savings rate, your investment choices, and your expenses.
The woman on the bus with her lottery tickets needs to calculate her strategy’s odds. The millions of Americans counting on pensions and Social Security might want to calculate theirs too.
The Bottom Line
In a previous Q&A post, I told a reader not to include money they don't control in their FI calculations. Social Security might be there at some reduced level. Pensions might pay something. But "might" isn't a retirement plan.
The evidence is overwhelming: when push comes to shove, promised benefits get cut. The only money you can count on is money you save and control yourself.
Start building that safety net today. Because when these systems start failing (and they will) the people who prepared will be fine. Everyone else will be hoping for a lottery ticket to come through.