Sunday, November 26, 2023

Rethinking my retirement strategy

I may have been wr.... That is I may have been wr..., a wr....g. ...I may have made a sub-optimal decision.

The conventional wisdom with regard to Social Security is that if you suspect that you will die young (family history, heart disease, history of cancer, general pessimism) then you should start claiming Social Security as soon as you can which is 62 in most cases.

The conventional wisdom also claimed that if you come from long-lived parents (both of my were over 90 when they died), are in general good health and are an optimist then you can maximize your lifetime benefits by deferring the start of Social Security benefits. At this stage, my benefits go up about 6.2% for every year I defer the start.

The thinking is that the person who out-lives the breakeven point (life expectancy of the general population) used to determine SS benefits will maximize benefits by taking less earlier but more later on.

The stick-in-the-spokes of the bicycle wheel is that Social Security benefits, while partially indexed for inflation, has been showing a growing gap between the monthly benefits and the actual pain we feel in the grocery story, gas pump, pharmacy and showroom.

From Shadow Stats website

The 1980 methodology consistently shows an 8% higher rate of inflation than that of the current methodology that has been "cooked" to not embarrass our policy makers.

Using the Rule-of-72 to estimate the time required to diminish the buying-power of a dollar, at 2.5% inflation the buying-power of a dollar is cut in half in 30 years while at 10% inflation the buying power is cut in half in 7 years.

Phrased another way: If the Social Security Administration doubled benefits over that thirty years based on their statistics, your actual costs would have doubled FOUR TIMES. That means that the buying power of your monthly benefit's actual buying power would have diminished by a whopping 87%.

The gap between actual inflation and reported inflation seems to be accelerating.

Several secular trends like the de-dollarization of global trade, low-wage countries moving their production base up-scale and the gutting of our domestic production base, the dearth of children being born suggest the trend will continue to accelerate.

Playing around with the numbers in a spread-sheet using the Net Present Value function, my actual age and the Social Security website's values for early distributions vs waiting until full benefits, and assuming I live to 87, it looks like the break-even between pulling the trigger now (two-and-a-half years after I could have started and two years before 100% benefits) is a 4% gap between actual inflation and the CPI used by the Social Security Administration.

My impression is that the gap is significantly MORE than 4%.

The flip side involves comparisons between the return in my 401-k and the nominal 6.2% annual increase in nominal benefits in Social Security. I have been harvesting money out of my 401-k to make up the shortfalls in our monthly budget so the funds from Social Security would minimize those withdrawals.

If I was making money hand-over-fist in my 401-k it would be a no-brainer. Protect the capital and pull the trigger on the SS. Looking at the previous 12 months, it looks like I only made 4.5% so the opportunity costs of not pulling the trigger on SS is not very great unless I had a better place to put the money.

Alternative investments

At one time the answer would have been to diversify into "real" assets like rental housing to shelter against inflation.

That option soured for a couple of reasons. For me, the biggest issue is that governments and courts demonstrated that they can shut-off rent payments whenever they want. Even though they shut off the rent they still demanded that the property owners continue to pay property taxes. And of course, many of the landlords had borrowed some of the money to purchase the property. The bank still expected to receive monthly payments.

Another issue is that property values are tanking (in real terms) in core cities where most of the rental property is available. The reason it is on the market is that the owners are bailing out. Too much maintenance. Too many taxes. Too many aggressive inspectors. Too hard/expensive to find tradesmen willing to park on the street while performing maintenance tasks.

We live in interesting times.


  1. I retired as soon as eligible. We live pretty cheap, and SS more than covers our expenses. We both have a pension, which no doubt helps a bunch. But we have no outstanding debt. Groceries are costing more but still not a huge bill for us, really. Early savings plans, and paying off the mortgage were key factors.
    Southern NH

  2. Not too far a way, but I'm pretty much planning on taking SS at 62 and working part time doing something. Providing that the wife gets herself a full time job with health care..............

  3. One of my co-workers, with a degree in accounting, and with extraordinary foresight, saw woke coming about 18 years ago and got out of the big company we were in. He also dabbled in stocks his whole working life. He is 76 now.

    He told me it doesn't matter when you take SS as it is designed to be equal amounts at the average life expectancy for you. (A little for a longer time or a lot for a shorter time.) He also had it figured that you need to draw SS for 15 years to break even if you had invested those amounts yourself.

    Best bet now (my opinion) is spend what you can because it is all worth less every day. The longer you wait, the less your purchasing power.


  4. ERJ, your musings have made me go back and look for a sheet I did some years ago about Social Security. I was trying to find the balance. I will have to look again.

    One thing that was also an overall consideration is the amount and type of spending one does as one reaches the 70's and beyond. If my parents and in-laws are any indication, it is not much: groceries, utilities, a few creature comforts, gifts - but that is really about it (they had both paid off their houses). Medical came to be a larger expense. The other consideration is simply what one will be doing at that time - in my late 70's, my parents took some driving vacations but they were certainly not jumping out of planes or traveling overseas.

    Rentals: I am aware of all of the arguments for it (I worked in real estate for a time). Given the current circumstances we are in - especially government interference in rent collection - I would argue you made the right choice. Even managing The Cabin that my parents owned with a friend living there is a great deal more worry and energy than I anticipated.

  5. Well Joe, you listed all the factors I've been fretting about.

    Got out of rentals a few years ago, that seems a bonus for more free time (repairs and management girrr) the tax gal has shown me I've not lost money getting out over the years.

    I've just recently closed the books on my Parents death after a long happy retirement.

    SNIP "I retired as soon as eligible. We live pretty cheap, and SS more than covers our expenses. We both have a pension, which no doubt helps a bunch. But we have no outstanding debt. Groceries are costing more but still not a huge bill for us, really. Early savings plans, and paying off the mortgage were key factors.
    Southern NH"

    Sounds good but my parents also had such happy thoughts when they retired.

    Inflation the thief never rests OWNING your home just means the TAX MANS Bite works slower, the power bills and repairs continue to cost more, aging means more medical bills and higher expenses.

    The last 10+ years they sold their home, we refitted a mother-in-law apartment in our home, and they lived with us. They kept their lunches out, privacy and dignity for an extra decade.

    That we prepaid their final arrangements meant there was a little left over when all the bills were paid to help their Granddaughter with schooling.

    And frankly they retired in nearly historically low inflation numbers for America. Not so much today.

    The "Retirement" our parents had is a done deal. Plan to work until you drop friends. That was reality for centuries.

  6. I recommend waiting to draw at age 65, or a little before that age. Health insurance becomes too expensive, and unless you have a really good policy through an employer, Medicare will be needed to defray the costs of healthcare. Adding a supplemental policy is best, and that can pay for the premium cost with one minor medical procedure.

  7. Look carefully at some of the dividend stocks. Many are a great value right now, and offer 15-30% (yeah, not a typo) returns, and have for a while. Even 10% yearly dividends will do better than most rental houses , likely at less risk.

    I moved much of my portfolio from stocks that (might) increase in value to dividend stocks and ETF's that pay better than 15% returns yearly and so far I am doing really well.

    (YMMV, not investment advice, do your own research, etc...)

  8. Take the SS now. Putting it off is part of the deepstate propaganda program. Don't buy into it. BobT

  9. I started taking SS as soon as I was eligible. One set of grandparents lived to 90, but I'm more like the ones that passed at 66 and 72.
    I retired at 60 with a decent pension, and have had the good fortune to find a part-time telepathology gig, using my skills on cold/hot or rainy days, that has allowed me to make enough $$ that I've had to pay back some of my SS $$ and take smaller payments until I hit my 'full retirement' age of 66 & 8months, when they'll have to start reimbursing me for the payback and diminished payments...and I'll be 'allowed' to make as much money as I can with no penalty.
    Kids are all out of college and employed, mortgage is paid off, we've funded the grandchild's college fund, we live frugally, don't eat out, heat with wood, grow a lot of our food.

  10. I did the "simple" math and came up with a 17 year break even point from 62 years old. Also, apparently I'm "rich" as I have a pension so my payment was cut by approximately 2/3 - 3/4. The "Windfall Elimination Provision". Not sure which of the things I worked a lifetime for is the "windfall", SS or pension. Obviously I'm an "entitled" person as I'm collecting my "entitlement" that wasn't stolen from me against my will during my working (for pay) lifetime. Oh.. wait..
    Rant over.

  11. I started drawing at 64 after I was forced to retire due to back issues. I would have liked to wait till 66, but... And yes, the paltry raises never keep up with inflation... grrr...

  12. Social Security was created to buy votes. NOT to provide financial security to retirees. Now that the left has proven they can decide who wins which election regardless of the actual votes expect Social Security to be phased out..and not in a gentle benign manner.

  13. Different for me since I am Canadian. I am trying to not rely on the government when retirement rolls around. I am fifty-eight, no debt, and invest my money in dividend stocks. With luck I have enough to someday quit working or work a lot less and live off the dividends.


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