No One Will Care More About Your Retirement Than You

Bloomberg had an editorial board piece about the dire state of Social Security along with a couple of ideas about how to solve the problem. There wasn't necessarily anything new for people who've been following this for a while but somehow they managed to make their version of the story more ominous. 

Reading these sorts of things it is natural to take the information through the lens of your own circumstance which is where I start to think about it. I've been transparent that my Plan A is to work forever (I'd be doing most of the study as a hobby if my income disappeared tomorrow) taking Social Security at 70. Who knows if everything works out as I hope but if part of the fix was to move the latest date to start SS to 72 then I'd consider that. My primary objective is that if I die young my wife would have the largest payout possible. 

No one should be naive or allow themselves to be overly vulnerable if their Plan A doesn't work out. That is obviously a privileged spot to be able to have a Plan B or Plan C. For a few years, we focused on trying to build up taxable savings in case something went wrong. We did that and now, only two years from penalty-free IRA withdrawals, we are back to saving into tax-advantaged accounts. 

CNBC.com posted the 2024 contribution limits which are $23,000 to 401ks (plus $7500 for catchups), $7000 to IRAs (plus $1000 for catchups) and from a different source, HSA account limits are $4150 for individuals, $8300 for a family plus $1000 for 55 and over. By the way, I think I found an HSA through the marketplace that will make economic sense. I've said a couple of times recently they haven't made economic sense for a while, well maybe 2024 will work out. I need to dig in a little more and will report back.

Take all of the above as reiteration from me, that no one, not the government, "no one will care more about your retirement than you," Joe Moglia quote. Reading the Bloomberg article and thinking about how thoroughly dysfunctional the government is, maybe it is prudent to plan on a 50% haircut to SS instead of the 23% that has been floating around for several years. One drastic idea I had at some point was maybe they eliminate the spousal benefit. Plan as if they're gonna drive this bus over the cliff. 

In a somewhat related note, Humble Dollar recapped some living in retirement ideas from Bill Bernstein. It's a good read, with a couple of my thoughts to some of what Bernstein suggests. 

Keep 10 years worth of living expenses in safe assets 

By safe, he means short term treasuries and CDs that are under the federally insured limit. That may not be as much money as it sounds, it is nuanced a little bit. He means fixed expenses beyond what Social Security, annuities or pensions would pay. So if someone covers $5000 of budgeted expenses from those sources and needs another $1000/mo for the rest of their budgeted expenses then they should set aside $120,000.

Sticking with that example, that might be beyond what most people can do. It's a lot of nominal dollars to have sitting out, not having the opportunity for a higher growth rate. Where possible, I target around two to two and half years worth of expected withdrawal needs set aside for clients. That seems like a good spot related to equity bear markets lasting 18-30 months. The 18-30 is a good argument for why 10 years worth might be too conservative. That much cash doesn't fit every client situation though. 

3% is more appropriate

This relates to Bernstein's idea for a safe withdrawal rate due to what he believes will be less favorable market returns going forward. This doesn't sound that onerous to me for the person who has already set 10 years worth of expenses aside. With that much in cash, the remaining investment portfolio is more for discretionary spending and emergencies. If that investment bucket has $1 million in it, are you going to spend $40,000 traveling every year? I'll concede I might be naive on this point. 

Is 3% necessary for people unable to have the luxury of ten years of expenses in cash proxies? I can't entirely refute the idea but we have talked about quite a few workarounds over the years. These include working longer (think post-retirement career or second career), figuring out how to create a passive income stream or two (this will take some work and some luck), delay taking from your accounts (might be difficult but obviously less burden if you need to withdraw for 25 years versus 35 years), delay SS (yes plenty of arguments to take it early), go the expat route temporarily (rent out your US house, live off that rent allowing your SS and account balances to grow), tweak the 4% rule to take out no more than 1% per calendar quarter (income will go down some years) and be adaptable. 

Yes, there are reasonable push backs on all of those but ultimately it is up to us to solve this for ourselves. No one will care more about our retirement than us. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.