Speaker 1: Welcome to How to Money. I'm Joel, and today I'm
Speaker 1: asking the question can millennials count on Social Security? With
Speaker 1: Mike Piper. Social security more than music, clothing, or political use.
Speaker 1: It's potentially the biggest generational divide. Boomers are stoked to
Speaker 1: finally be receiving their promise checks, while Millennials and gen
Speaker 1: Z sit on the sidelines, wondering if social Security is
Speaker 1: even going to exist when the time comes for them
Speaker 1: to collect. And while social Security is highly unlikely to
Speaker 1: disappear entirely to evaporate overnight, it probably won't look exactly
Speaker 1: the same as it does today either. My guest today
Speaker 1: is Mike Piper. He's a CFP, he's an author, he's
Speaker 1: an og blog from two thousand and eight over at
Speaker 1: his site, The Oblivious Investor, and I couldn't think of
Speaker 1: anyone better to discuss this tumultuous topic with. So Mike,
Speaker 1: thank you so much for joining me today.
Speaker 2: Very happy to be here.
Speaker 3: Quick quick correction note there, I'm a CPA rather than
Speaker 3: a CFP.
Speaker 1: That's what I should us said, CPA, not CFP. All right,
Speaker 1: So I love making mistakes early on in the podcast.
Speaker 1: That way, you know, I fall out on my face
Speaker 1: and hopefully it's all perfect from here on out. First
Speaker 1: question I ask everyone who comes on the show, Mike,
Speaker 1: is what do you like to splore? John Kraft Beer
Speaker 1: one of my you know, main things. I'm willing to
Speaker 1: spend a lot more than most people would, but it's
Speaker 1: okay because I'm saving and investing for the future at
Speaker 1: the same time. What is that for you?
Speaker 2: Sure?
Speaker 3: My number one hobby for the last fifteen years or
Speaker 3: so has been rock climbing, and so that involves travel
Speaker 3: to a different places, especially because I live in Missouri
Speaker 3: where there aren't a lot of mountains, so travelize you
Speaker 3: might have badge it, but also various types of gear.
Speaker 2: If you ever see movies or people.
Speaker 3: Are put in gear into cracks and things like that,
Speaker 3: all of that gear costs money and you eventually build
Speaker 3: up a collection of it over time.
Speaker 1: Were you were you glued to the screen when Alex
Speaker 1: Hanald was making his recent ascent in Type A.
Speaker 3: Yeah, myself and my wife and a bunch of friends
Speaker 3: we were all watching it, and you know, we have
Speaker 3: a group chat on What's app that we're kind of
Speaker 3: narrating it to each other and then chatting about it.
Speaker 1: It was fun as someone who's like into it. I'm
Speaker 1: like barely in the beginnings of rock climbing with my
Speaker 1: daughter as someone who's into it. How impressive is that feet.
Speaker 2: It's very impressive.
Speaker 3: There's the difficulty of it, of course, but completely separate
Speaker 3: from the difficulty of it is the mental control, right,
Speaker 3: I mean the difficulty grade. Of course, buildings don't have
Speaker 3: established climbing grades, but he estimated it's a quote five
Speaker 3: to eleven D, which is a grade that many many,
Speaker 3: many people could climb right with rope and so on
Speaker 3: experienced climbers.
Speaker 2: But of course with a rope, not me though, but with.
Speaker 3: A rope is very different than without a rope in
Speaker 3: terms of keeping everything together mentally.
Speaker 1: Yeah, no, I mean, yeah, he's a freak. Like you
Speaker 1: think about people that are just at the furthest extent
Speaker 1: of what they do in terms of like skill and
Speaker 1: mental awareness and ability to just to kind of lock
Speaker 1: in and do the job. He's definitely up there as
Speaker 1: like one of the most fascinating athletes absolutely currently in existence.
Speaker 1: Him and Killy and Jordanett are up there for me
Speaker 1: on the Mount Rushmore. Let's talk about social security. It's
Speaker 1: become a polarizing topic, of course, and I feel like
Speaker 1: we're seeing more headlines, more doom and gloom predictions about
Speaker 1: Social Security. Why do you think, well, why is that
Speaker 1: and why do you think people are so like sour
Speaker 1: on Social Security.
Speaker 3: Yeah, there's been headlines, well for a long time now
Speaker 3: about the trust fund running out of money, and you'll
Speaker 3: hear it sometimes they're saying that So Security is going
Speaker 3: broke or Social Security is running out of money, because
Speaker 3: for many years, the program took in more money than
Speaker 3: it paid out in benefits each year. Because every year,
Speaker 3: when we work, the payroll taxes that you're paying, or
Speaker 3: if you're self employed, the self employment tax you're paying,
Speaker 3: most of that is Social Security tax. So the program
Speaker 3: takes in money every year, and for many years it
Speaker 3: was taking in more than it was paying out. So
Speaker 3: over that time it built up a trust fund, an
Speaker 3: excess pool of capital basically. But now now that baby
Speaker 3: boomers reached social security age, largely the opposite has happened
Speaker 3: has been going on, where the trust fund is now
Speaker 3: dwindling because the program is paying out more every year
Speaker 3: than it's taking in.
Speaker 2: And this is not a surprise.
Speaker 3: Obviously, we've known that Baby boomers would eventually reach age
Speaker 3: sixty two and start collecting social Security right the we
Speaker 3: had several decades to see this problem coming. And what
Speaker 3: many people see, though, is this headline that the trust
Speaker 3: fund is expected to be depleted, and every year the
Speaker 3: Social Security Trustees put out a new report with the
Speaker 3: most recent information, and it moves around that the estimated
Speaker 3: date a little bit. Twenty thirty two to twenty thirty
Speaker 3: four somewhere in that window is probably what we're looking at,
Speaker 3: and it moves around a little bit, but not very much,
Speaker 3: like it's not going to be twenty forty seven or
Speaker 3: something like that. It's not going to happen in twenty
Speaker 3: twenty eight, because again, we have a pretty good idea
Speaker 3: of how much the program is going to have to
Speaker 3: pay out every year, Like we know how many people
Speaker 3: there are who are sixty one this year, and who
Speaker 3: are of them, how many you're going to live to
Speaker 3: be sixty two next year, and so on. We have
Speaker 3: a very good idea of, you know, all of the
Speaker 3: estimated costs here. But what a lot of people miss
Speaker 3: when they see that headline that the trust fund is
Speaker 3: going broke. The trust fund is running out of money
Speaker 3: and it's going to run out. And you know, twenty
Speaker 3: thirty three, a lot of people think that that means
Speaker 3: that Social Security is going to go to zero, and
Speaker 3: that's that's not correct at all, because again, the program
Speaker 3: takes in money every year. Every time that we earn
Speaker 3: wages or self employment income, we're paying Social Security tax.
Speaker 3: And the trustees of the Social Security Trust Fund that
Speaker 3: estimate that even if Congress does nothing, so absolutely no
Speaker 3: changes to improve the funding of the program, the ongoing
Speaker 3: revenue would be enough to pay for about three quarters
Speaker 3: seventy six percent of the promised benefits basically indefinitely.
Speaker 1: That bigs a lot of questions though, right, so like
Speaker 1: in particular in twenty thirty three, right, it's it sounds
Speaker 1: like a long way off, but it's really is coming. Yeah,
Speaker 1: what happens to current retirees in twenty thirty three our
Speaker 1: checks and immediately just cut in a quarter of the
Speaker 1: check that retirees getting, Is it cut?
Speaker 2: Right?
Speaker 3: That's an open question because it's ultimately going to be
Speaker 3: up to Congress, Right, what happens on that date if
Speaker 3: they don't do anything between now and then. And you know,
Speaker 3: fifteen years ago when I started writing about this, topic.
Speaker 3: Kind of the conventional wisdom, frankly, was that Congress would
Speaker 3: would have done something already by this point to do
Speaker 3: you know, whether it's increasing taxes or reducing benefits or
Speaker 3: some combination thereof most likely to improve the funding of
Speaker 3: the program. And that hasn't happened yet. So here we
Speaker 3: are with that date coming up, and what actually does
Speaker 3: happen on that date will be up to Congress. I
Speaker 3: in the last few years have heard more people proposing
Speaker 3: a scenario where Congress basically just says, Okay, we'll just
Speaker 3: fund that gap out of just general tax revenue. Whereas
Speaker 3: the way the program is set up right now, benefits
Speaker 3: are always specifically paid from the trust fund and from
Speaker 3: incoming revenue social Security tax specifically every year, whereas it
Speaker 3: could be changed so that, you know, any shortfall is
Speaker 3: paid out of the there's just general you know, federal
Speaker 3: income tax revenue.
Speaker 1: This is one of those things that would have been
Speaker 1: easier to fix when you first started writing about it.
Speaker 1: But does it mean that the fixes need to be
Speaker 1: more substantial because we've waited so long to address it.
Speaker 2: Yes, exactly.
Speaker 3: The fact that we've waited means that the you know,
Speaker 3: because for instance, if the fix was entirely done by
Speaker 3: increasing taxes, well, if we would have done it ten
Speaker 3: years ago, we would have been able to do it
Speaker 3: by a smaller tax increase, right, because we've had more
Speaker 3: years to pull in that extra revenue. The longer we wait,
Speaker 3: the more drastic the chaines have to be.
Speaker 1: Absolutely, from a return standpoint, I think, especially how to
Speaker 1: money listeners tend to skew towards millennial gen z. From
Speaker 1: a return standpoint, does social Security provide a good return
Speaker 1: for the average person? Because I know there are a
Speaker 1: lot of people who listen to the show and they're
Speaker 1: trying to be intelligent with their money, and they're like,
Speaker 1: my goodness, I feel like I could do a lot
Speaker 1: better if I had that money in my hands, right,
Speaker 1: And I understand why the Social Security system exists, and
Speaker 1: it's to prevent you know, a white swath of Americans
Speaker 1: who don't do smart things with their money from being
Speaker 1: destitute and retirement. But what would you say, how would
Speaker 1: you help somebody understand what the returns are, Like we're
Speaker 1: investing in their four O one K versus what they
Speaker 1: get from Social Security and what they paid in and
Speaker 1: what they get out.
Speaker 3: Yeah, It's a very interesting question, but one that's actually
Speaker 3: fairly tricky to answer because social security has other components
Speaker 3: than just retirement benefits. Right when we pay Social Security tax,
Speaker 3: there's also social Security disability benefits. There's also survivor benefits. So,
Speaker 3: for instance, if somebody dies and they have minor children,
Speaker 3: those minor children will in many cases be able to
Speaker 3: receive a Social Security benefit until a certain age, things
Speaker 3: of that nature.
Speaker 2: And so.
Speaker 3: The tax revenue that you're paying, some portion of it
Speaker 3: is going to those retirement benefits, but another chunk is
Speaker 3: going to these other social safety net protection programs essentially,
Speaker 3: And so if you ignore those things and only look
Speaker 3: at you know, assume that every dollar is going towards
Speaker 3: retirement benefits, and you look at how much you put
Speaker 3: in and how much you're expected to get out, the
Speaker 3: rate of return is modest. It's not atrocious, but it's
Speaker 3: you know, it would be modest, of course, and that
Speaker 3: depends on how long you ultimately live and so on
Speaker 3: to collect benefits. But the key thing is that a
Speaker 3: significant part of the money that we're putting in every
Speaker 3: year goes to pay for other protections. So you could
Speaker 3: model it as saying Okay, I'm paying x amount every year,
Speaker 3: and I can think of that as buying a disability
Speaker 3: policy and that would cost them dollars, and buying a
Speaker 3: life insurance policy and that would cost them dollars. And
Speaker 3: then what's left is what's actually going into this retirement program.
Speaker 2: And exactly how to model it.
Speaker 3: You know, there's a lot of different ways, a lot
Speaker 3: of differ assumptions you would need to make. But that's
Speaker 3: I think a lot of people when they look at
Speaker 3: the modest rate of return, they're just missing a couple
Speaker 3: of key components of what the program does.
Speaker 1: Yeah, and if you are one of those people, right
Speaker 1: who does become disabled and qualifies for those disability benefits
Speaker 1: like your ROI, essentially on the money you put into
Speaker 1: the system skyrockets. But if you're fortunate, right, then your
Speaker 1: return is doesn't look nearly as enticing.
Speaker 3: Precisely, it's a social safety net program and it's a
Speaker 3: social insurance program. So for the people who need, those
Speaker 3: who end up needing that insurance essentially who become disabled, yes,
Speaker 3: the payout is much much higher than for those of
Speaker 3: us who end up I say us on the assumption
Speaker 3: that I won't become disabled but of course who knows. Ye,
Speaker 3: then for anyone who doesn't become disabled and doesn't die
Speaker 3: and then have young dependents who are receiving benefits.
Speaker 1: How do you help, especially with kind of the up
Speaker 1: in the air reality of how Congress addresses the Social
Speaker 1: Security Trust Fund running out and potential cutback in benefits
Speaker 1: or potential just changes to how Social Security gets funded,
Speaker 1: how do you help younger investors think about the piece
Speaker 1: of the pie that Social Security will play for them
Speaker 1: in their retirement years.
Speaker 3: I think that a reasonable approach is the assume Congress
Speaker 3: does nothing plan essentially, so there's no reason to really
Speaker 3: assume that Social Security is going to disappear, because that
Speaker 3: would require Congress not doing nothing. That would require Congress
Speaker 3: doing something. It would require Congress eliminating this program that is,
Speaker 3: according to many surveys, literally the single most popular program
Speaker 3: that the federal government.
Speaker 1: Has, and the biggest voting block, the most active voting block,
Speaker 1: like really really annoying those.
Speaker 2: People exactly right.
Speaker 3: So it's it's not a very politically likely scenario that
Speaker 3: Congress will just eliminate Social Security. So I do think
Speaker 3: though it's reasonable to say, well, let's assume they do
Speaker 3: nothing and so assume that instead of however much my
Speaker 3: social Security statement when I log in at SSA dot gov,
Speaker 3: it says I'm going to get this much, maybe use
Speaker 3: about three quarters of that much instead.
Speaker 1: Okay, Yeah, I was like literally about to log in
Speaker 1: right now as you're speaking and see what it would
Speaker 1: tell me. I've looked it up in recent months, and yeah,
Speaker 1: it's it's not one of those things you want to
Speaker 1: take with a grain of salt. You don't want it
Speaker 1: to be It's not completely inaccurate, but you would say,
Speaker 1: temper your expectations and maybe don't no factor in the
Speaker 1: full amount that SSI dot Gov is telling you you're
Speaker 1: going to get into your spending plans for retirement.
Speaker 2: Yes, exactly.
Speaker 1: Okay, So yeah, do you think that social security pessimism
Speaker 1: is leading some young people to oversave, maybe maybe causing
Speaker 1: them to spend too little right now? Because I do,
Speaker 1: I mean, I do think there is a prevailing attitude
Speaker 1: that doesn't have that like tempered expectation. It's like, screw it.
Speaker 1: I'm just I'm just totally gonna figure this out on
Speaker 1: my own because I don't trust that this is going
Speaker 1: to be around for my future, and especially like in
Speaker 1: those years where you have good health, you have more freedom.
Speaker 1: It's it's really tough to think, like I've got to
Speaker 1: go at one hundred percent on my own if there
Speaker 1: are let's say, thousands of dollars waiting for you in
Speaker 1: your sixties when you do retire, to not factor that
Speaker 1: in would essentially mean you have to forego more enjoyment
Speaker 1: of those dollars. Now do you do you see that
Speaker 1: as like an overreaction and as a common reaction.
Speaker 3: Emphatically, yes to everything you just said. That's exactly right.
Speaker 3: That it's I really don't think it's necessary to assume
Speaker 3: zero dollars coming from Social Security, even even for you know,
Speaker 3: the youngest of the workers today. And exactly what you said,
Speaker 3: The only way to make a plan work when we're
Speaker 3: using super pessimistic assumptions is to spend much lessons save
Speaker 3: much more than we really needed to. Like you could
Speaker 3: also assume that you're going to live to be one
Speaker 3: hundred and forty in retirement and that your portfolio is
Speaker 3: going to earn zero you know, like, yes, that will
Speaker 3: make your plan very very safe, very conservative, And there's
Speaker 3: you know, we want to be reasonably conservative, but within
Speaker 3: a realm of realism.
Speaker 1: Yeah right, you could be overly conservative and really hamper
Speaker 1: some of the other things you want the money to do.
Speaker 2: For you, absolutely right.
Speaker 3: The way that you achieve conservativism and financial planning is
Speaker 3: by not spending money, and that's a real sacrifice.
Speaker 1: Yeah, okay, So in terms of and you maybe briefly
Speaker 1: alluded to what it could look like to fix the
Speaker 1: social Security system so that it is robust right for
Speaker 1: decades centuries to come, right, especially with like the demographics
Speaker 1: issues that we face as a country. How do what
Speaker 1: are your thoughts for rebuilding the Social Security program? What
Speaker 1: needs to be done to ensure that it's shored up,
Speaker 1: especially as older you know, we're seeing an older, aging
Speaker 1: population and the replacement like just your kids being born.
Speaker 3: I think most likely the way that we get from
Speaker 3: here to there is on both ends of this, right,
Speaker 3: it's probably a reduction in benefits in some way and
Speaker 3: an increase in revenues meaning an increase in taxes in
Speaker 3: some way. Almost certainly not just from a pragmatic point
Speaker 3: of view, but from a political point of view. The
Speaker 3: only way that Congress would agree to this like neither
Speaker 3: you know, Democrats aren't going to agree to just a
Speaker 3: whole bunch of benefit cuts, and Republicans are probably not
Speaker 3: likely to agree to funding everything through increased taxes, So
Speaker 3: from a political point of view, it's probably going to
Speaker 3: be a compromise. And the way that benefit cuts could
Speaker 3: look the two things I see most frequently discussed. Number
Speaker 3: one is an increase in full retirement age, which is
Speaker 3: often misunderstood. You can start receiving Social Security retirement benefits
Speaker 3: as early as sixty two, where you can wait all
Speaker 3: the way until age seventy. We're not talking about changing that.
Speaker 3: We're just talking about changing the what we call full
Speaker 3: retirement age, which is just an age for most of us.
Speaker 3: It's sixty seven that our benefit calculation is pegged to,
Speaker 3: and basically all the math depends on whether you start
Speaker 3: taking your benefits before or after full retirement age. And basically,
Speaker 3: if we bump up a person's full retirement age, that's
Speaker 3: just another way of saying, at any given age, they
Speaker 3: will get less dollars. So when we talk about increasing
Speaker 3: full retirement age, it's a very straightforward, just cut to benefits.
Speaker 3: It's not we're not actually changing the age which somebody
Speaker 3: would start receiving benefits we're just talking about reducing the dollar.
Speaker 1: And this has happened in the past, right, Can you
Speaker 1: talk to me about how that went down?
Speaker 2: Yeah?
Speaker 3: Absolutely, So this was before my time in terms of,
Speaker 3: you know, what the discussions in Congress looked like. But
Speaker 3: full retirement age was it used to be sixty five,
Speaker 3: and then it was gradually increased to sixty six, and
Speaker 3: now and then it's been gradually increased to sixty seven,
Speaker 3: and so it seems very likely that we'll just see
Speaker 3: eventually full retirement age b age seventy.
Speaker 1: Frankly, and in a lot of ways that makes sense too.
Speaker 1: I mean, when you think about the conception of Social
Speaker 1: Security when it first started, the people lived didn't live
Speaker 1: nearly as long, right, So isn't don't we think of
Speaker 1: Social Security differently in twenty twenty six than kind of
Speaker 1: what it was intended to be when it was originally launched?
Speaker 3: Very much so, the program has very much evolved over
Speaker 3: the years. It didn't originally include benefits for spouses or survivors. Uh,
Speaker 3: And then when it did start including benefits for spouse's
Speaker 3: it you know, we had wife's benefits and then they
Speaker 3: had husband's benefits.
Speaker 2: Later.
Speaker 3: It's a very It has definitely grown over the years
Speaker 3: to be a more a broader social safety net program
Speaker 3: than how it was originally intended, and even just on
Speaker 3: the basic retirement benefits side. Just like you said, the
Speaker 3: expected length of time for which somebody would now receive
Speaker 3: retirement benefits is longer than it was, you know, almost
Speaker 3: a century ago.
Speaker 1: For sure. Man, so much more to discuss, including well,
Speaker 1: how do you know when you need to change your
Speaker 1: social security claiming strategy? Work, health, those things can impact that.
Speaker 1: We'll talk about that and more. Right after this, I'll
Speaker 1: talk about Mike Piper. We're talking about social security, the
Speaker 1: good and the bad of the social security system, and
Speaker 1: and and where things are headed, especially if things stay
Speaker 1: on their current track. Let's talk We do have older listeners, Mike,
Speaker 1: who listen to How to Money. Let's talk about boomers
Speaker 1: and people who are kind of or people who are
Speaker 1: on the cusp let's say, of making that decision about
Speaker 1: when to claim social security? Can you offer some rules
Speaker 1: of thumb for when someone should Would it make sense
Speaker 1: to take social security versus delaying?
Speaker 2: Yes.
Speaker 3: First thing that I often like to point out is
Speaker 3: that when people think of the risk side of social security,
Speaker 3: they often get it exactly backwards. You'll hear people say
Speaker 3: all the time, I don't know how long I'm going
Speaker 3: to live, and therefore I'm going to claim Social Security
Speaker 3: right away to make sure I get at least something
Speaker 3: right They'll say, you know, it's a bird in the hand,
Speaker 3: and that's literally that's precisely backwards. That's exactly incorrect. Because
Speaker 3: when we talk about retirement planning, the scary scenarios, the
Speaker 3: financially scary scenarios are not the ones.
Speaker 2: Where you die early.
Speaker 3: Right If you retire at sixty and then at sixty
Speaker 3: three you die of a heart attack, you probably did
Speaker 3: not run out of money in retirement. It's the person
Speaker 3: who's still alive at one hundred and three and they've
Speaker 3: been in a nursing home for the last twenty years
Speaker 3: like that's the person who's more likely more at risk
Speaker 3: of running out of money. And so the long life
Speaker 3: scenarios in retirement planning, those are the scary ones. It's
Speaker 3: kind of unusual. We don't normally think of living a
Speaker 3: long time as a bad thing, but when we're talking
Speaker 3: about retirement planning, that's the financially scary scenario, and delaying
Speaker 3: benefits makes you safer in those scenarios where you live
Speaker 3: a long time, So there should already be just from
Speaker 3: the risk point of view, a significant bias in favor
Speaker 3: of filing later. And then we can dig into this
Speaker 3: life expectancy based math and say, okay, well, what's the
Speaker 3: age that would maximize how much I'm likely to get
Speaker 3: over my entire life span? Which filing age that is,
Speaker 3: would maximize the amount I'm likely to get over my
Speaker 3: life span, and the way that typically works for an
Speaker 3: unmarried person. That also points in favor of waiting for
Speaker 3: the simple reason it's actually exactly what you just brought
Speaker 3: up a minute ago, Joel, which is that people on
Speaker 3: average live longer now than they used to, and those
Speaker 3: longer average life expectancies is a point in favor of
Speaker 3: waiting to file for benefits.
Speaker 2: When we talk.
Speaker 3: About a married couple, it gets a little more complicated
Speaker 3: because now we have to be thinking about survivor benefits.
Speaker 3: And the very short summary there is that when the
Speaker 3: higher earner of the married couple, whichever person is a
Speaker 3: higher earnings history, whenever that person delays claiming their retirement benefit,
Speaker 3: it increases the household's income as long as either of
Speaker 3: the two people is still alive, because it increases that
Speaker 3: person's own retirement benefit, and it increases their spouse's benefit
Speaker 3: as a survivor if the spouse outlives them. So it's
Speaker 3: just like increasing your own retirement benefit, but for a
Speaker 3: potentially even longer time because it's increasing this other person's
Speaker 3: benefit also if they outlive you.
Speaker 1: But then the trade off too if someone waits to delay,
Speaker 1: the instant reaction is like, well, I have to work longer,
Speaker 1: right if I delay Social Security, but I'm ready to
Speaker 1: quit working. What would you say to somebody like that,
Speaker 1: Because that's a real that's a real trade off, especially
Speaker 1: if someone's doing let's say, difficult, really difficult work that's
Speaker 1: hard on the body, and they're like, I don't know, man.
Speaker 1: I get that I could make more money if I
Speaker 1: delay taking my take my Social Security check and claiming it,
Speaker 1: but I don't know that I can keep doing this job.
Speaker 2: Absolutely.
Speaker 3: Those are independent decisions, though, so when we're talking about
Speaker 3: when to file for Social Security, if we're saying for
Speaker 3: this household, it makes sense to wait to file for
Speaker 3: their benefit, that's not necessarily saying it makes sense to
Speaker 3: wait to retire. In most cases, When we're doing that analysis,
Speaker 3: we're taking the retirement age as a given. This person
Speaker 3: plans to retire at age such and such, and given that,
Speaker 3: when should they file for their Social Security benefits? And
Speaker 3: in many cases, the way the math works out even
Speaker 3: is that even if you have a plan of retiring
Speaker 3: earlier and spending more in your early retirement years, which
Speaker 3: is very common, right, most people, when they think about
Speaker 3: how they want their retirement to go, they kind of
Speaker 3: intend to front load the spending a little bit, right,
Speaker 3: spend more on travel and so on when it's easier
Speaker 3: to do that. It's hard to take a whole bunch
Speaker 3: of really cool locations when you're in your late eighties. True,
Speaker 3: even if that's the plan, delaying social Security is still
Speaker 3: often the thing that makes sense, not always, but often,
Speaker 3: because if you know that at age seventy you're going
Speaker 3: to have this high, very safe stream of income kicking
Speaker 3: in that's inflation adjusted, it's going to last the rest
Speaker 3: of your life on, that can make it safer to
Speaker 3: spend from your portfolio at a higher rate in the meantime.
Speaker 1: So when we talk about like safe withdrawal rates and
Speaker 1: stuff like that, right that for some people let's say
Speaker 1: early on in their retirement and they've read, they've seen
Speaker 1: the four percent safe withdraw rate floating around, and they're like, man,
Speaker 1: it seems intuitively like I could tap more of that
Speaker 1: if it allows me to delay social Security so that
Speaker 1: I'm needing less money in those future years. How do
Speaker 1: you help people think through what a proper safe withdrawal
Speaker 1: rate looks like? If they're delaying social Security, can they
Speaker 1: tap more of what they've got?
Speaker 2: Yeah, that's a great question.
Speaker 3: Software is very helpful here rather than like mental math
Speaker 3: rules of them. And this is kind of a shortcoming
Speaker 3: of the four percent withdrawal rate concept, Like people will
Speaker 3: argue about is four percent the right number? You know,
Speaker 3: maybe it should be three and a half, maybe it
Speaker 3: should be four point seven, And that's a worthwhile discussion,
Speaker 3: But that's not what I'm getting at here. It just
Speaker 3: has a limitation this concept in terms of actual real
Speaker 3: life retirement, because most people don't spend the same amount
Speaker 3: from their portfolio every year, right Because often, especially if
Speaker 3: you imagine a married couple, often it's spouse a retires,
Speaker 3: spouse be's still working for a couple of years, and
Speaker 3: so maybe they're spending a little bit from their portfolio,
Speaker 3: and then spouse b retires and now they're spending a
Speaker 3: lot from their portfolio. And then four years later one
Speaker 3: of their social security benefits kicks in, and so the
Speaker 3: spending goes down. And then a few years later the
Speaker 3: other social security benefit kicks in, and so the spending
Speaker 3: from the portfolio goes down again, and so the actual
Speaker 3: spending rate it's not normally nearly as neat and tidy
Speaker 3: as that the four percent like modeling concept, but it
Speaker 3: is frequently quite fine, quite okay to have a spending
Speaker 3: rate in excess of four percent in the pre social
Speaker 3: security years. For instance. You know, if let's say you
Speaker 3: have a let's say you're retiring at sixty five, and
Speaker 3: you're going to have a seven percent spending rate from
Speaker 3: your portfolio for five years, and then when social security
Speaker 3: kicks in, it's going to be you're projecting about a
Speaker 3: two percent spending rate.
Speaker 2: That's fine, yeah, right.
Speaker 3: You're gonna you should put something, you should take a
Speaker 3: chunk of your portfolio and allocate it to something very
Speaker 3: safe to handle that extra level of spending for those
Speaker 3: five years. But then just you know, so that you
Speaker 3: don't have a big problem if during those five years
Speaker 3: the market goes.
Speaker 2: Down really suddenly. But that's okay.
Speaker 3: It's okay to spend more than four percent for a
Speaker 3: short period of time if then for most of your
Speaker 3: retirement you're going to be spending even less.
Speaker 1: So you were talking too about how the higher earning
Speaker 1: spouse that typically is the person who should delay claiming
Speaker 1: Social Security longer, Right, what does that say for the
Speaker 1: other partner and when they should.
Speaker 3: Yes, that's exactly you're going the right place with us.
Speaker 3: It does the exact opposite for the other person. When
Speaker 3: the spouse with the lower earning history waits to file
Speaker 3: for benefits, it increases the amount that the household receives
Speaker 3: as long as both people are still alive, which is
Speaker 3: a shorter length of time. So that makes it distinctly
Speaker 3: less advantageous for that person to wait to file for benefits.
Speaker 3: Doesn't necessarily mean it's a bad idea, because we still
Speaker 3: have the longevity risk side of things that points in.
Speaker 2: Favor of both people waiting.
Speaker 3: But now you've got one factor pointing in favor for
Speaker 3: a filing earlier and one factor pointing in favor of
Speaker 3: filing later, And so there's a trade off to be made,
Speaker 3: Whereas for the higher earning spouse, both factors a point
Speaker 3: in favor of waiting. So it's a very very clear
Speaker 3: and obvious decision. For the lower earner, it's a less
Speaker 3: obvious decision, but it's also usually a less impactful decision
Speaker 3: because frankly, those two factors often roughly cancel each other out.
Speaker 3: And so I mean this varies by household, but it
Speaker 3: is often the case that anyone filing age is roughly
Speaker 3: as good as any other filing age for that person.
Speaker 1: When should people make a change in their planning strategy, Like,
Speaker 1: let's say that, like a diagnosis comes along, right, health issues,
Speaker 1: and your your thought process was you look at the
Speaker 1: actuarys like, I'm pretty good at health, Like you know,
Speaker 1: based on my genetics and family history, I could live
Speaker 1: till not one forty like you mentioned, but maybe like
Speaker 1: my nineties, right, Like ninety five is not out of
Speaker 1: the question. Delaying till seventy makes a lot of sense
Speaker 1: because I am protecting you know, getting the maximum check
Speaker 1: for those the next totally twenty five years after that.
Speaker 1: But then some diagnosis comes along and it completely changes
Speaker 1: all those assumptions. How do you help people think about
Speaker 1: making tweaks or big, big old changes to what they
Speaker 1: were planning to do with Social Security.
Speaker 3: Yeah, this is a really important one. The answer is
Speaker 3: simplest if the person is not married. Right, So, if
Speaker 3: this unmarried person they were planning on waiting and now
Speaker 3: they have this very you know, a bad diagnosis with
Speaker 3: a not a very positive prognosis, then it often makes
Speaker 3: sense once you have that information, go ahead and file
Speaker 3: for benefits now. Right, a big change in the math.
Speaker 3: It means we're now somewhat less worried about those live
Speaker 3: a very, very long time scenarios. It changes everything really,
Speaker 3: so it's a very strong point in favor of filing.
Speaker 1: Now.
Speaker 3: It's more complicated for the married couple because it gets
Speaker 3: back to that joint life expectancy idea.
Speaker 2: If the higher earner.
Speaker 3: Is the one who gets that really bad diagnosis, it
Speaker 3: still usually makes sense for them to wait until seventy
Speaker 3: because for the higher earner, what we're concerned with is
Speaker 3: the couple's second to die joint life expectancy, and that
Speaker 3: probably hasn't changed all that much. Yeah, because the other
Speaker 3: spouse is still in good health. However, if that higher
Speaker 3: earner gets a bad diagnosis, that is now actually a
Speaker 3: very strong point in favor of the other person filing early,
Speaker 3: the person without the diagnosis, the lower earner, because the
Speaker 3: lower earner when we're talking about when that person should
Speaker 3: file for benefits, we're concerned with the first to die
Speaker 3: joint life expectancy for the couple, and this new news
Speaker 3: about this diagnosis is very relevant in terms of making
Speaker 3: that first to die joint life expectancy considerably shorter than
Speaker 3: we had previously thought it would be. So it's a
Speaker 3: point in favor of that lower earner filing early. So basically,
Speaker 3: regardless of who gets the bad diagnosis, it's a point
Speaker 3: in favor of the lower earner filing earlier, and it's
Speaker 3: not really a major point in favor of the higher
Speaker 3: earner filing earlier.
Speaker 1: Okay, you mentioned how software can help with this, right,
Speaker 1: and how some of the rules of thumb can be
Speaker 1: very helpful, but plugging in your specifics is more can
Speaker 1: be more revelatory. So and you, I don't know how
Speaker 1: long this took you, how hard this was, because I
Speaker 1: am not This was before Claude vibe coding and stuff
Speaker 1: like this. You created a tool to help people do
Speaker 1: social security planning to where you could plug in numbers
Speaker 1: and have a quickly a much better idea of when
Speaker 1: claiming social security makes sense. Can you talk to me
Speaker 1: about that tool?
Speaker 3: Sure, it's called open social Security. The website is just
Speaker 3: OpenSocial security dot com. It's called open because it's open source.
Speaker 3: You can find all of the code on GitHub, so
Speaker 3: it's not a black box. Also as an open source project,
Speaker 3: other people are welcome to use the code for other purposes.
Speaker 3: And it's free, and it doesn't you know, it's free
Speaker 3: in the sense that you don't have to put in
Speaker 3: your email address or anything like that. It's not like
Speaker 3: free and then we're going to, you know, try to
Speaker 3: sell you a premium thing. It's just free to use.
Speaker 3: And it did take a long time to code. And
Speaker 3: actually it took me about twenty hours a week for
Speaker 3: about two and a half years.
Speaker 1: Wow.
Speaker 3: And it is remarkable having now used cloud code. Like
Speaker 3: in visual Studio code, it probably would take me about
Speaker 3: a week or two to build that software.
Speaker 1: It's crazy to think about how helpful that has become
Speaker 1: for people.
Speaker 2: Yeah, it's it is crazy.
Speaker 3: But anyway, what the program does is fairly straightforward. There's
Speaker 3: a lot of you know, math details here, but The
Speaker 3: concept is straightforward.
Speaker 2: Basically, it says, we.
Speaker 3: Don't know how long you're going to live, we're going
Speaker 3: to use We're going to use a mortality table of
Speaker 3: your choosing.
Speaker 2: Right.
Speaker 3: Actuaries work for insurance companies or the Social Security Administration
Speaker 3: make these tables that say, if you are this old,
Speaker 3: you have such and such probability of dying within the
Speaker 3: next year. And then if you are one year older,
Speaker 3: now you have such and such slightly higher probability of
Speaker 3: dying this year, and so on and so. What the
Speaker 3: calculator does is basically every year, so it looks at
Speaker 3: every combination of possible filing ages, and for each of
Speaker 3: those combinations of filing ages, it then does this math
Speaker 3: that's basically calculating the probability weighted total lifetime benefit that
Speaker 3: would be received. And it basically says which filing age
Speaker 3: for a single person or for a couple, which combination
Speaker 3: of filing.
Speaker 2: Ages would be expected.
Speaker 3: Of course, we don't know, because we don't know how
Speaker 3: long somebody will live, but we can use mortality tables
Speaker 3: to estimate, so which filing age would be expected to
Speaker 3: provide the most total benefits over my lifetime or the
Speaker 3: most total benefits over my lifetime after accounting for the
Speaker 3: fact that at any dollars that you get sooner are
Speaker 3: more valuable than dollars that you get later because you
Speaker 3: can invest them.
Speaker 1: Basically, I was gonna say, I've heard some people, even
Speaker 1: pretty smart people, say tap at sixty two and then
Speaker 1: invest that money, like you're gonna do better. What would
Speaker 1: your response be to those people.
Speaker 3: Yeah, that has to be a part of the analysis.
Speaker 3: We have to be looking at the what we call
Speaker 3: the opportunity cost. If you wait till seventy you didn't
Speaker 3: just give up eight years of benefits.
Speaker 2: You gave up eight years of.
Speaker 3: Benefits and whatever investment returns you would have gotten from
Speaker 3: those eight years of benefits. And just to be clear,
Speaker 3: everything I've said so far in our discussion today has
Speaker 3: been taking that as a given that that's a part
Speaker 3: of the analysis. We're already accounting for that foregone investment
Speaker 3: return in everything I've said. A key point when we're
Speaker 3: thinking about if we're trying to do that analysis where
Speaker 3: we're looking at what rate of return we should use
Speaker 3: in our assumptions, we usually want to use a conservative
Speaker 3: rate of return. The most applicable rate of return is
Speaker 3: the yield on tips treasury inflation protected securities because they
Speaker 3: are the investment that is most similar to Social Security
Speaker 3: because they are backed by the federal government and their
Speaker 3: inflation adjusted just like social Security is. And so that
Speaker 3: is from like a finance textbook, that's the reason that's
Speaker 3: the most appropriate rate of return from a finance textbook
Speaker 3: point of view, but even just from a basic nuts
Speaker 3: and bolts real life financial planning point of view, when
Speaker 3: we're talking about delaying social Security or claiming early. Most
Speaker 3: of the time, if we're claiming early, we're not actually
Speaker 3: investing the money. We're usually spending it. But it lets
Speaker 3: more of your portfolio remain invested, and so we're having
Speaker 3: to think about the rate of return that you still
Speaker 3: get from those dollars that are still invested, as opposed
Speaker 3: to having needed to be spent. And when we talk
Speaker 3: about delaying social Security and the fact that you're going
Speaker 3: to have to spend from your portfolio at a sum
Speaker 3: what faster rate over those years, the dollars you want
Speaker 3: to spend down are usually bonds, fixed income.
Speaker 2: As I actually mentioned this.
Speaker 3: Earlier when we were talking about how you know someone
Speaker 3: who is retiring at sixty five and then waiting until
Speaker 3: seventy and so they're going to have a higher spending rate,
Speaker 3: a higher ritual rate, but then it'll be lower when
Speaker 3: social security kicks in. And I was saying, it makes
Speaker 3: sense to take a part of your portfolio, carve it out,
Speaker 3: and allocate it to something very safe, like a CD
Speaker 3: ladder or a bond ladder that lasts for those five
Speaker 3: years until social security kicks in. So even just from
Speaker 3: a real life financial planning point of view, we usually
Speaker 3: want to have some chunk of the portfolio that is
Speaker 3: specifically dedicated to this, to the higher rate of spending
Speaker 3: that will be necessary from the portfolio until social security
Speaker 3: kicks in, and that chunk of the portfolio should be
Speaker 3: allocated to something safe like bonds. And so, in a
Speaker 3: very real sense, a very literal sense, when you delay
Speaker 3: social see security, you are spending down your bonds. And
Speaker 3: so the rate of return you're giving up is bonds
Speaker 3: because that's what you're spending from. So that's that's the
Speaker 3: rate of return that we usually want to be using
Speaker 3: in the analysis.
Speaker 1: How does somehow money listeners are keen on retiring early, right,
Speaker 1: So let's say you're retiring in at age fifty, Right,
Speaker 1: how does that change the approach to thinking through claiming
Speaker 1: social security or does it?
Speaker 3: Well, if we're thinking about retiring at age fifty and
Speaker 3: age fifty is still in the future for us, So
Speaker 3: you know, somebody who hasn't yet retired, then you know,
Speaker 3: by definition, we're at least twelve years away from this
Speaker 3: social security decision. Right, sixty two is the earliest at
Speaker 3: which you could claim it. And so, frankly, I don't
Speaker 3: think you really need to be putting a whole ton
Speaker 3: of time into really digging into exactly when I should
Speaker 3: file for benefits if it's still that far away, because
Speaker 3: your life circumstances could change in one or more meaningful ways,
Speaker 3: the diagnosis that you talked about, for instance, or maybe
Speaker 3: Congress actually will do something and so the rules will
Speaker 3: be different than they are now.
Speaker 1: We can always yeah, exactly.
Speaker 3: So, or just your portfolio is a different size than
Speaker 3: you expect it to be, or whatever it is, and
Speaker 3: so I think it. You know, while we're doing financial
Speaker 3: planning in somebody's thirties or forties, and we're including social
Speaker 3: security in that, we want to you know, we're including
Speaker 3: some estimate of how much social security will be I
Speaker 3: think it makes sense to assume it's going to kick
Speaker 3: in at age seventy, and usually probably makes sense. The
Speaker 3: further way somebody is from age sixty two, the more
Speaker 3: sense it makes to assume this roughly one quarter cut
Speaker 3: in benefits. But that's not to say that necessarily when
Speaker 3: that day comes, when this person is sixty two, they
Speaker 3: should automatically wait until seventy. At that time, they should
Speaker 3: base it on all the information they have at that time.
Speaker 3: You know, we just don't have that information yet.
Speaker 1: I got more questions for you, Mike, including the disclaimer
Speaker 1: you have on your site about why people shouldn't work
Speaker 1: with you. We'll discuss that and more right after this
Speaker 1: talking with Mike. Mike, we're talking about social Security, and Mike,
Speaker 1: I want to ran out of this conversation with just
Speaker 1: like a few other questions. And one of the things
Speaker 1: I appreciate about your blog the way you talk about
Speaker 1: money is that you don't want to over complicate things
Speaker 1: for people, and social Security can be very complicated, as
Speaker 1: we've discussed in their software. That's helpful and it's important
Speaker 1: to have the kind of a lot of those things
Speaker 1: on our radar. But what would you say, like in
Speaker 1: what ways do people tend to over complicate things on
Speaker 1: the investing and saving up for retirement side of things?
Speaker 1: And do you have any kind of favorite simple approaches
Speaker 1: that are just so much easier year than kind of
Speaker 1: maybe what people have assumed they need to endure to
Speaker 1: reach retirement in a healthy manner.
Speaker 3: Yeah, the investing side of things, absolutely, people over complicated.
Speaker 3: When I speak with other financial planners, their portfolios are
Speaker 3: on average simpler than the portfolios I see from clients,
Speaker 3: really from new clients who come in, Yes, without a doubt.
Speaker 1: People who've been DIY in it, they're just all over
Speaker 1: the map.
Speaker 2: Yes, not everyone.
Speaker 3: I mean, certainly, there's there's examples the person who comes
Speaker 3: in and their portfolio is three funds or a target
Speaker 3: dight fund or whatever.
Speaker 2: But it's super common.
Speaker 3: For instance, when a new client comes to me and
Speaker 3: I see their portfolio for the first time, it's you know,
Speaker 3: you've got his and hers iras, his and hers four
Speaker 3: one ks broth IRA's taxable brokerage account and maybe multiples
Speaker 3: of any of those, you know, at multiple different companies.
Speaker 3: And in many of those accounts you'll see ten different funds,
Speaker 3: and then it's another ten funds, different funds, and another
Speaker 3: one of those accounts. In total, they've got fifty different
Speaker 3: mutual funds and then six different individual stocks. And there's
Speaker 3: no obvious like rhyme or reason to it. Like it
Speaker 3: sort of looks like it was just like a collection that.
Speaker 2: Occurred over time.
Speaker 3: You know, they at some point added this one and
Speaker 3: because you know, maybe there was an article they read
Speaker 3: about it, or the fund manager or and at some
Speaker 3: point they added that one because they saw a discussion
Speaker 3: or they saw it had good performance or whatever it is,
Speaker 3: and they didn't you know, clean it up at any
Speaker 3: point in time and eliminate stuff. So that happens very frequently. Also,
Speaker 3: I'll see a lot of portfolios where you've got the
Speaker 3: total stock market index fund and a large cap fund
Speaker 3: and an S and P five hundred fund like these things,
Speaker 3: like the overlap is enormous, and so they'll have, you know,
Speaker 3: and then also a MidCap fund and a small cap fund,
Speaker 3: and essentially they've between those three funds, they've built the
Speaker 3: total stock market fund anyway, and they have a total
Speaker 3: stock market fund holding, and it's like what why. You know,
Speaker 3: it's very very common to see portfolios that just have
Speaker 3: a ton of different holdings when it's not really adding
Speaker 3: any benefit.
Speaker 1: Yeah, and in case of all those different funds, the
Speaker 1: total stock market fund in and of itself would likely
Speaker 1: be lower cost than having this hodgepodge of a bunch
Speaker 1: of different funds, not to mention just the inefficiency and
Speaker 1: annoyance of looking at the performance of so many funds.
Speaker 3: Yeah, it's often lower costs the inefficiency and annoyance. And
Speaker 3: there's really good research on this topic. Every couple of years,
Speaker 3: Morning Start puts out a report that they call the
Speaker 3: mind the Gap Study, and they talk about the gap
Speaker 3: that is the different between a mutual funds like reported performance.
Speaker 3: This is how the fund performed, and this is how
Speaker 3: investors that owned the fund performed. Meaning we're accounting for
Speaker 3: cash flows in and out of the fund. So if
Speaker 3: more people owned the fund over a particular month, that
Speaker 3: month is weighted somewhat more heavily in the analysis. And
Speaker 3: there is generally a gap investors somewhat underperformed the funds
Speaker 3: that they own, and that gap is smallest with like
Speaker 3: target date funds and balanced funds because people tend to
Speaker 3: buy those things and then just leave them alone, right,
Speaker 3: because that's kind of the whole idea. Yeah, And the
Speaker 3: gap is largest with sector funds, meaning you know, like
Speaker 3: a healthcare fund or a technology fund or whatever, because
Speaker 3: people often buy those at a time right when the
Speaker 3: fund has just had some really great performance and oh gosh,
Speaker 3: look at that, I should add that one.
Speaker 2: To my portfolio.
Speaker 3: And of course it varies, but that's not usually a
Speaker 3: good strategy to buy something right after it had some
Speaker 3: really great performance.
Speaker 2: And people in the more.
Speaker 3: Sliced than dice their portfolio is into all these different
Speaker 3: subcategory funds, the more likely they are to underperform the
Speaker 3: funds that they own because they're buying and selling them
Speaker 3: at the wrong times. Whereas if you just have a
Speaker 3: very basic portfolio and you just leave it alone, you'll
Speaker 3: at least earn the performance that your funds themselves earn.
Speaker 1: I remember reading a morning Star report, this is probably
Speaker 1: twelve or fourteen years ago, and when morning Star admitted
Speaker 1: that the cost of a fund is actually more important
Speaker 1: than the star rating of a fund, and the fact
Speaker 1: that one morning Star was willing to say that out loud,
Speaker 1: that the costs a matter more than how we rate funds,
Speaker 1: and just it's how indicative of just how important low
Speaker 1: cost star too, and the average person doesn't quite understand
Speaker 1: the incredible significance of that.
Speaker 2: Yes, exactly.
Speaker 3: Most most people, when they, you know, they start a
Speaker 3: new job, they enroll in the forum and kay, they've
Speaker 3: got the menu of funds, the most the intuitively most
Speaker 3: important thing to look at. Well, look at the performance, right,
Speaker 3: this one has the highest ten year performance. I'm going
Speaker 3: to pick that one. And that's not a very good
Speaker 3: way to pick. The expense ratio is the dominant factor.
Speaker 3: We want to, you know, pick whatever asset allocation we want,
Speaker 3: and then within a given category within US stocks, for instance,
Speaker 3: we just want to pick the lowest cost one.
Speaker 1: Yeah. So, so I mentioned in the beginning that your blog,
Speaker 1: The Oblivious Investor has been around for almost two decades.
Speaker 1: Do you ever get tired of thinking or writing about money?
Speaker 1: This is this is a question I get asked to
Speaker 1: at this point for how long I've been doing this job.
Speaker 1: I'm curious from your perspective, like, do you get tired
Speaker 1: of talking about money?
Speaker 3: Not in general? Because we were talking about this, you know,
Speaker 3: before we started recording.
Speaker 2: Where people always write in.
Speaker 3: With new questions when I discuss a topic on the blog.
Speaker 3: That spurs people to ask related questions or whatever's on
Speaker 3: their mind, and it's fun to dig into those new topics. Sometimes,
Speaker 3: you know, answering the exact same question over and over
Speaker 3: and over gets a little bit repetitive, and of course,
Speaker 3: you know, you do something long enough, that's what ends
Speaker 3: up happening. But at the same time, it's important to
Speaker 3: recognize that if people are asking the same question over
Speaker 3: and over and over, it's because it's an important one,
Speaker 3: and it's because it's one that matters to a lot
Speaker 3: of people. And for instance, just the thing that you
Speaker 3: just brought up about expense ratios, like that's something that
Speaker 3: every investor really needs to learn that at some point,
Speaker 3: and if we don't keep talking about it, then the
Speaker 3: next generation of investors just won't learn that. Yeah, right,
Speaker 3: And so you have to kind of keep repeating some
Speaker 3: of the same themes over and over just to make
Speaker 3: sure that everyone eventually gets the message.
Speaker 1: One of the things I was struck by I went
Speaker 1: to your personal site where people can hire you for
Speaker 1: your services, and you quickly at the very top, you
Speaker 1: list a bunch of reasons why people should not work
Speaker 1: with you, and I thought it was very refreshing, But
Speaker 1: why did you do that? And what can folks who
Speaker 1: want to hire someone to help them with their finances
Speaker 1: learn from that? You're just kind of honesty. Hey, this
Speaker 1: is who I work with, this is who I am,
Speaker 1: and this is a bunch of people who it just
Speaker 1: wouldn't make sense to hire me.
Speaker 2: Yeah, I put that on there.
Speaker 3: It's it was meant kind of in a lighthearted spirit, right,
Speaker 3: But I very much mean those things. You know, For instance,
Speaker 3: it just says I don't do anything crypto related. So
Speaker 3: if that's a big part of your portfolio, I don't
Speaker 3: have the skills and expertise and interest in dealing with that.
Speaker 3: Or you know, I don't do tax preparation. I don't.
Speaker 3: If you're looking for someone who's gonna pick the next
Speaker 3: high flying stock or fund, I'm not that guy. And
Speaker 3: I think it's useful to communicate expectations to anyone who
Speaker 3: you might end up working with.
Speaker 2: But also.
Speaker 3: It just saves time, right, Like the number of increes
Speaker 3: that come in now is much more likely to know
Speaker 3: those people are much more likely to be a better
Speaker 3: fit as opposed to wasting their time and wasting my
Speaker 3: time when the thing they're looking for is something that
Speaker 3: I that I don't do.
Speaker 1: And you specifically say that you specialize in working with
Speaker 1: people who have di wie kind of the saving and
Speaker 1: investing side of things, and now they need help as
Speaker 1: they're getting closer to retirement age. What are That's going
Speaker 1: to be a lot of people who listen to this show,
Speaker 1: right who are like, I'm doing the DIY thing on
Speaker 1: the front end. What are the particular obstacles or issues
Speaker 1: that people tend to face when they're in that category.
Speaker 3: Yeah, the age range that I just personally happen to
Speaker 3: be working with, just because that's where my deepest area
Speaker 3: of expertise lies. With social security, for instance, is like
Speaker 3: my median client age is sixty five. It's rare for
Speaker 3: me to work with anyone under age fifty, So, just
Speaker 3: by virtual of the fact that that's who I happen
Speaker 3: to work with. The primary questions are can we retire
Speaker 3: or are we on track to retire in three years
Speaker 3: for instance, or we're already retired, and is the amount
Speaker 3: we're spending okay? Or could we afford to bump it
Speaker 3: up a little or do we need to cut it
Speaker 3: back a little? The social security question that we've been
Speaker 3: talking about this whole time. Is there a way to
Speaker 3: simplify their portfolio or a way to make it more
Speaker 3: tax efficient. Those are things that we're looking at. Other
Speaker 3: key questions as you go from the accumulation stage to
Speaker 3: the okay, now you're retired stage. All through our accumulation
Speaker 3: years while we're working, we're always talking about retirement accounts
Speaker 3: and you in your four one K should you make
Speaker 3: tax deferred contributions or ROTH contributions? Well, once you retire,
Speaker 3: you have the exact same question just flipped on its head.
Speaker 3: Now we're asking which dollars should you spend each year?
Speaker 3: Should you be spending your ROTH dollars or your tax
Speaker 3: the third dollars or your taxable brokerage account dollars or
Speaker 3: inverting those dollars? Yep, that question also should we be
Speaker 3: doing ROTH conversions because that becomes more relevant during especially
Speaker 3: those years after you have retired. So your work income
Speaker 3: has disappeared, so your income has gone down for this reason,
Speaker 3: and Social Security and rm ds haven't kicked in yet,
Speaker 3: so you have like a temporarily low level of income.
Speaker 3: That's the window of time that ROTH conversions are most
Speaker 3: likely to make sense. So those are the most common
Speaker 3: questions that I'm working with clients on but that is
Speaker 3: again just due largely to the age range of the
Speaker 3: people I work with. Right if you're working with people
Speaker 3: who are primarily in their thirties, we'd be talking about
Speaker 3: can we afford to buy this house, saving for kids college,
Speaker 3: or paying off their own student loans, you know, all
Speaker 3: of those questions. Navigating employee benefits would be a big
Speaker 3: big deal, you know, getting the most out of the
Speaker 3: benefits that your employer offers. So a different set of
Speaker 3: questions for people at a different age.
Speaker 1: Mike, I really appreciate the time. Thank you for joining me.
Speaker 1: Where can how do money listeners find out more about you?
Speaker 1: Obviously your blog and the Social Security website Open social Security?
Speaker 1: What else do you want folks to know?
Speaker 3: I think, Oblivious Investor the blog is probably the best
Speaker 3: resources there's, you know, more than a thousand articles there
Speaker 3: in a post every week.
Speaker 1: Man, it's a lot of money riding over the years,
Speaker 1: and it's it's a great site. And we'll link to
Speaker 1: that stuff in the show notes as well. So, Mike,
Speaker 1: thank you for taking.
Speaker 2: The time, Thank you for inviting me.
Speaker 1: As always a great conversation man, So fortunate to have
Speaker 1: very interesting intelligent, thoughtful, well spoken guests here on how
Speaker 1: to money, and Mike is no exception, and man, it's
Speaker 1: just so helpful. I think the big takeaway from this is, Hey,
Speaker 1: social Security is still intact, folks, And yeah, Congress sits
Speaker 1: on their hands most of the time. They have kind
Speaker 1: of abdicated abdicated their jobs for the most part. And yes,
Speaker 1: there is a ticking time bomb of sorts headed our way.
Speaker 1: The you know, twenty thirty three time time frame is
Speaker 1: when we're likely to see benefit cuts if Congress does nothing.
Speaker 1: But then again, there's the political necessity, the clamoring for
Speaker 1: a fix that I gotta imagine it's the Winston Churchill quote.
Speaker 1: I guess you can always count on Americans to do
Speaker 1: the right thing after they've tried everything else. And my
Speaker 1: guess is this will be something somewhat similar in how
Speaker 1: we react to and fix what's going on with the
Speaker 1: Social Security system as the demographics change. But I also
Speaker 1: love and appreciate Mike's just lack of alarmism. When you
Speaker 1: read the headlines, it's really easy to make hard pivots
Speaker 1: and assume that Social Security is a non entity for you,
Speaker 1: especially for people who are in their twenties, thirties and forties.
Speaker 1: I think there's just this more and more of an
Speaker 1: assumption that they've got to go it alone. And I
Speaker 1: think Mike's insight a lot. So much of the work
Speaker 1: he's done has has been too focus on social security
Speaker 1: where things are heading, and Mike knows more about Mike's
Speaker 1: forgotten more about soci security than I ever learned about it.
Speaker 1: And so to get to hear from him from the
Speaker 1: horse's mouth essentially that the young people should not for
Speaker 1: sake counting on social Security. They should just be thoughtful
Speaker 1: about how much they're likely to get. So I'm on
Speaker 1: the Social Security website, I'm looking at my own projections
Speaker 1: as I speak to you, and it is just really
Speaker 1: interesting to see this laid out. Okay, my estimated monthly
Speaker 1: benefit at full retirement age, what if I early, what
Speaker 1: if I delay it? That's that's helpful information. But then
Speaker 1: also kind of what Mike said is well, trimming that
Speaker 1: by a quarter is probably the best conservative assumption to make.
Speaker 1: And you can also go to his calculator OpenSocial security
Speaker 1: dot com, which is a really helpful tool, especially if
Speaker 1: you're trying to plan for near term claiming and it's
Speaker 1: it's free. There are a lot of Social Security calculators
Speaker 1: that will make you pay, and Mike's is excellent and free,
Speaker 1: which is wonderful. So I hope you enjoyed this episode,
Speaker 1: and I hope, I hope if you are worried about
Speaker 1: the existence of Social Security, this was at least a
Speaker 1: little bit of relief that it's not one hundred percent
Speaker 1: on your shoulders to fund your own retirement, although I
Speaker 1: guess when it comes down to it, we're paying into
Speaker 1: the system. We're funding it just through regular paychecks. But
Speaker 1: you don't necessarily need to go above and beyond in
Speaker 1: terms of, uh putting more pressure on yourself to maximize
Speaker 1: every single retirement account available to you. But I'll put
Speaker 1: links to Mike's Mike's website, his blog the Social Security
Speaker 1: Calculator that is available for free all up on the
Speaker 1: website at holptmoney dot com. Until next time, Best Friend Out.