Opening Our Retirement Kimono

Early on Thursday I got my annual email from Social Security encouraging me (everyone) to log in to their account to get their latest numbers after they were bumped up for last year's large, by recent standards, cost of living adjustment (COLA).

Everyone's numbers went up of course. Past a certain age, maybe 50 but either way, it is important to understand your numbers and make sure there are no errors in your earning history. I had one once and got it fixed. 

My full benefit at 67 went up to $3118/mo so my wife's spousal benefit would max out at $1559/mo. There is of course a perpetual debate about whether to take it early, take it at your full retirement age or wait to let it keep growing but for a spousal benefit it stops going up at age 67 assuming the primary spouse hasn't already taken it. 

People get very impassioned about whether to take it early along the lines of not using their own savings to live on but having the SS payment from the government right away to do that, some people bank it believing they can make more in the stock market or they have reason to think they might not live past the point where you start to come out ahead by waiting. People who like to wait often like the idea of a "guaranteed" 8% annual raise they'll accrue by waiting. I've said many times that I prefer to wait until 70 so that if I die young, my wife would get my max benefit.

For a little context of how much you get by waiting, if I take it at 62 I would get $2134 so the most my wife would get then would be $1067. As mentioned, at 67 I get $3118 and at 70 I would get $3897. I also looked at what it would be if I split the difference between 67 and 70, at 68 6 months it would be $3316. 

While I am motivated to wait until 70 to take my payout, it's less important to max out Joellyn's benefit. As a matter of circumstance at the time, when I am 70, Jo will be 64, her payout at that time would be in the low $1300's and we might want to take both at essentially the same time for a combined $5200/mo. If she took it at 65 it would be in the mid $1400's. 

By the time 2036 rolls around we'll have long been mortgage free on the house we live in and a few years mortgage free on our rental. In today's dollars, our fixed expenses excluding soon to be paid off mortgages is about $2800. The extra $2400 could cover most month's one-offs like vet bills, small home repair, car stuff, discretionary spending, our annual firewood delivery and all the other stuff frequent to our life. Our income from our rental would be less than our Social Security payout if we're still doing that. I certainly have no plans to stop managing money at a particular age but don't feel I can plan for what my income from that might be when I am 70. We also have savings we can draw from but I am hoping that money would just be for big things that we want to do, like travel, and big things we might have to do like buy a new car every so often or do something very expensive to our house. 

The biggest variable to our plan seems to be the costs of medical things. Our system is so broken, I have no faith in it which is a small part of why I am a bit of a health nut. Another variable is whether Social Security does go through that 23% payout reduction that's been floated for the last few years. While a cut seems like a low probability outcome, that is the threat. It makes more sense to be concerned about what could go wrong, not what can go right. 

We are very lucky that a payout cut would not be catastrophic, $5200 would become $4000. Some people even think SS will completely go away, that it will fail. I think that's nuts but anyone who is worried about that should work now to figure out how to financially mitigate that threat. Clarifying one thing, I don't think it is impossible that some sort of Universal Basic Income replaces Social Security, welfare and all other government programs. A payment reduction could certainly be part of that outcome, more along the lines of a haircut.    

I think it's important to be transparent and accountable to the things I suggest other people do. It doesn't really matter if you read this and disagree with all of it, but walking the walk is important to me.