Bloomberg interviewed Alicia Munnell from the Boston College Center for Retirement Research. She of course has come to be a thought leader for what ails the Social Security system. Shockingly it boils down to three things; cutting benefits, raising the cap one way or another or some combo of both. I’ve framed it numerous times by saying that something will have to give.
Included in there is what I will bluntly call nonsense about replacement rates as in how much of someone’s income Social Security is intended to replace. There was talk in the interview about replacement rate dropping from 36% to 27% over some long period of time. It’s nonsense for a long list of reasons including people making well above the cap won’t get anywhere near that sort of replacement rate, replacing X% of your income focuses on the wrong thing, income versus spending. Many people plan to have their mortgage paid off by the time they retire, someone who is retired is less likely to save for retirement. Another point missed by replacement rates is people who live below their means.
Social Security wants people to know how much their benefit will be, they send it to us every year. What’s your benefit (and what’s your partner’s benefit if applicable)? I’ve disclosed before that my FRA is $2800 (today’s dollars) starting in 2033 (I would note I hope to still be working past that age but it might be difficult to attract clients when I am 80). If my wife takes her spousal benefit at 65 in 2037 she would get $1200. That adds up to more than our fixed monthly expenses including the mortgage on a house we moved into in 2012 that we’ve been paying extra on and should be paid off in four years.
We also bought the other house on our road earlier this year and have been renting it out on Airbnb with a lot of bookings (better lucky than good). It should be paid off when I am 64 and if we stick with it and continue average $1000-$1500, that plus our Social Security for monthly living would mean the portfolio could be for medical expenses and traveling.
