March 7

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Relying Entirely on Social Security

Family Update

Ok. You are all going to think we are crazy…..but we got a puppy. That’s right. In the span of a week, we got two kittens and one puppy named Desmond. He is s mini-Goldendoodle which is a cross between a miniature poodle and a golden retriever.

This thing looks like a teddy bear. He’s been great about going potty outside. He walks on a leash with no problem. He seems like a really mellow guy. We’re considering using him as a therapy dog at some point.

 

I’ve been pounding the same drum for years.  Many Americans believe a lot of retirees are forced into poverty.  Many Americans read stories of the elderly who must cut drastic corners to survive.  Many of you believe that most people rely on Social Security as their sole source of income.

 

While I want to be sensitive to those of you who are truly struggling with your retirement finances, the data points to a different story compared to those above.

 

Let some of this information sink in:

 

Among older Americans, only 12% of men and 15% of women rely on their monthly Social Security check for nearly all of their income.

 

Social Security benefits represent about 30% of the income of the elderly.  Most retirees use Social Security as a base income, but use other sources to supplement their income.

 

Also remember that, according to the Center for Retirement Research, 48 percent of retirees are able to maintain their standard of living.

 

Not only are people getting by, but half the country is living retired no differently than when they working.

 

Many of your fears simply come from a lack of planning and a lack of education.

 

Let’s take a look at a quick example.

 

Paul and Lilly Jones are retired.

 

Paul’s Social Security =  $1700/mo

Lilly’s Social Security  =  $1900/mo

Retirement Assets  = $400,000

 

In this example, Paul and Lily fall firmly into the middle class.  Five percent of $400,000 is around $1600/mo.  This is the perfect amount.  Not too much, not too little.

 

By adding their Social Security payments to their investment income Paul and Lilly will receive a $5,200 a month “Fixed Income.”  This is a pre-tax number.  But I have great news!  In this situation, Paul and Lilly will pay nothing in income taxes.  Why?

 

1. Social Security is only taxed if you hit a certain threshold.

2. You no longer pay Medicare and Social Security tax.

3. There is a $24,000 standard deduction for filing jointly which wipes out the rest of the income.

 

I’ve helped countless people with budgeting.  Mostly the budgets I see fall between $3,000-$6000.  I would say $5000 is a good average.

 

There is also an interesting phenomenon I’ve noticed.  For those of you whose Social Security benefit is below average, it means you’ve made below-average wages throughout your life.  This means that you’ve learned to live on a simple, modest budget.

 

I was going to continue this article but I was blindsided by a headline that showed up in my news feed.

 

‘We really did hit peak stupid’: Elite investors on Wall Street say privately that the market is about to undergo a cataclysmic shift — and many won’t survive the ‘washout’

 

This is one of the scarier headlines I’ve seen (and the longest).

 

How are we stupid and why does this scare us?

 

The article features an unnamed billionaire.  Billionaires know everything about the stock market right?  They have crystal balls that we don’t, right?

 

The language in the article is clearly designed to scare you.  You would much sooner read this article than an article about disciplined, long-term investing.  That’s why they write these stories.

 

Here are some quotes:

 

“Silly season’s over folks”

 

“This is not a drill.  It’s the beginning of a bear market”

 

“We really did hit peak stupid, but peak stupid extended beyond truly, truly stupid, and then we went to bottom-of-the-ocean-rare-earth-metal-companies stupid.”

 

LOL.  That one is almost comical.

 

The article does point out some economic factors that could lead to a bear market, but there is always the other side to the story.

 

·      Fed rate hikes.  It is “common wisdom” to think that if interest rates rise it will hurt the stock market.  Not true.  There is almost no correlation between rate hikes and stock returns.

 

·     Inflation is at all-time highs.  That almost guarantees a bear market, right?  Wrong.  The correlations between the two are almost non-existent.

 

·     You can expect lower than normal returns in this economic environment.  Really?  I’ve heard that for twenty years.  It’s always been wrong.

 

I rail against this kind of fear-mongering because I really feel deeply sorry for all those retirees out there.  I picture them checking their portfolio every day.  I see them keeping an eye on the ticker that’s at the bottom of any news channel.

 

You are being forced to peg your retirement income on the stock market which is inherently volatile and illogical.

 

Hang in there.  Stocks and bonds have experienced consistent growth for 200 years.  Don’t let temporary events (no matter how awful they appear), derail a well-crafted retirement plan.

 

Be Blessed,

 

Dave

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