Create Your Own Solution

The Washington Post says that "Republicans say it is time to raise taxes" to try to fix Social Security. By raise taxes, the primary implication is increasing or eliminating the cap, the level of income where people stopping having to pay FICA each year. The article goes on to mention considerations for means testing and various other sorts of ideas like raising ages for eligibility and anything else you've seen mentioned. 

Quite a few years ago, I blogged a few times that I thought people born before a certain year, I guessed 1975, would not have to confront benefit cuts in the context of what is now an expected 22% cut in 2032. That assessment appears to be incorrect. If Congress never tackles/solves the issue then I think we'd all be facing that 22% cut (the exact percentage and year has been a little bit of a moving target). 

What role will/does Social Security play in your financial picture? There's some mental accounting in the different ways people think about that answer. For some clients and plenty of commenters at places like WSJ and Barron's, it is more of an afterthought.

If things go as planned for my wife and me for when we take it (70 and she would be 64) and if it is reduced by 22%, in today's dollars it would be $5213/mo which exceeds our fixed expenses. The mental accounting for us is that the $5213 would be the first dollars we spend. If we still have rental income at that point then that income would contribute to our month to month living. Our accumulated savings would be for fixing things, buying the occasional big thing (my Tundra is 20 years old and will need to be replaced at some point), traveling and any other one-off unbudgetable expenses that come up.

I also brought up the idea of means testing a long time ago which as I mentioned is in the article. Who knows what that would look like, my comments on that were if means testing happens, it would come down to much lower levels of income and wealth than we might think or at least we should prepare for that. 

Our unreduced amount at 70/64 would be $6604 in today's dollars. We are not loaded but we are plenty comfortable. As a very aggressive means testing scenario that came down to our level of income/wealth, what would happen if $6604 was instead $3302? Yeah, that's aggressive but what if it shakes out that way? It's easy to quantify and then assess. Actually managing something like that might be more difficult of course but the dollar and cents assessment, just open a spreadsheet. $3304 would still be a meaningful contributor to our month to month expenses but we would need to rely on our savings more, not a catastrophe.

If the country is as unprepared for retirement as the media portrays, then solutions need to be found, people need to find their own solutions. The Wall Street Journal wrote that Boomers Are Moving Into Retirement Communities Alongside Their Parents. Some of the profiles in the article are people moving into the same community but some others are actually living with a parent as roommates, splitting expenses. From the standpoint of a financially challenged retirement, splitting expense with a family manner is a solution even if it's not Plan A for too many people. Five or ten years of spending less (half?) seems financially productive. 

Another solution that we haven't talked about in a while is tiny houses.

You can see the one above costs $72,000 and the one below is $36,000. 

They are more like much nicer manufactured homes than what most people think of for manufactured housing. You can go find modular_houses on Instragram to see the more, they are very nice and also a huge upgrade to what most tiny houses looked like ten years ago. The typical scenario for these is usually leasing a spot in a community or putting one of these on your own parcel. If you know otherwise, please leave a comment and I don't know about permitting one of these onto parcels, that's probably different across jurisdictions. 

Again, this may not be Plan A for too many people but in the context of serious financial challenges for retirement, a clean, new house that is paid for where everything inside works because it is new is a pretty good outcome.

All of this is about preparing in case whatever you have in mind for your retirement, your Plan A, does not work out as expected. Expecting fair outcomes (from the government) is bound to end up in disappointment. We are all here now, living our lives while the problem continues to go unfixed. Maybe they will fix it, logic says that one way or another they will but what if they don't or what if you are ground zero for everything that is unfair about what they come up? 

Ditto our busted healthcare system.

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.