Don’t Trust the Financial Media, Either

I bet you didn’t know this:


That is from the Social Security Administration 2018 Facts & Figures report. What the SSA is saying is that the information they’ve been using from the Census Bureau Current Population Survey(CPS) to report retiree income has been suspect. As such, the SSA is going to stop using the CPS numbers. 

Anyone who actually took the time to read the questionnaire the CPS was using when asking about retiree income could see this. The CPS question on retirement income essentially asked ONE question on retirement distributions. Basically the question was, did you have retirement income from an employer sponsored plan such as a pension? 

Well, very few of us have pension income anymore.  Inherently we’d answer no. In fact, at retirement, very few of us even keep our employer sponsored plan (401k, 403B, TSP) with the employer, we roll it to an IRA, and as such we’d also answer no; Not only do we not have a pension we no longer have an employer sponsored retirement plan. 

However, according to the Investment Company Institute there are nearly $10 TRILLION dollars in IRA assets. Yet the CPS never asked, specifically, about retirement income from IRAs. So, what we don’t know in the CPS reporting is how much of that $10 TRILLION paid out as income to retirees. 

The Tax Foundation reports that in 2016 nearly $1 TRILLION of income was reported as coming from Pension, Annuity and IRA income.  How much of that was solely from IRAs? I don’t know. But suffice it to say it was a LOT OF MONEY. Not to consider the income that is being derived from this huge amount of assets is simply unacceptable.  

Now, don’t hammer the Census Bureau too much here.  They did ask the question of retirement income but they did it in such a confusing way few would answer it correctly. As such they overlooked billions of dollars of retirement income. 

How did no one catch this? I remember a few years back reading the CPS questionnaire and thinking how insanely confusing it was.  I wondered what I must have been overlooking because there was no way the researchers could be this inept, right?  

I actually did a bit of investigation to see if there were any other folks taking issue with the CPS data.  Unfortunately, I found nothing. So, I assumed it must be me who was missing something. I mean, they couldn’t get this so wrong could they? They were professionals after all and I was just some guy in my home office. So, I just dropped the issue. 

Well, fast forward a few years, and lo and behold, it turns out it wasn’t me, it WAS them! Their data WAS screwed up, as mentioned in the Social Security statement above. 

It appears the CPS has now fixed this and it looks great. Kudos to them for their new questionnaire

For income and poverty, the updated processing system includes edits to take full

advantage of the redesigned questionnaire. For example, several variables were added for defined-benefit pension income and defined-contribution withdrawals (such as from 401(k) plans) to replace the previous variables on retirement income. The imputation system was updated to make use of income ranges provided by some non-respondents as well as to increase the number of characteristics used in the imputation models. (emphasis mine)

In fact, if you are so inclined to look at the 375 page questionnaire, you will notice questions related to retirement income explicitly excluding pensions and annuities. YAY!  (Just open the document and do a CTRL F and type retirement in the find box. You’ll see over a hundred references to retirement in this document.)

That is all good, don’t get me wrong.  When things aren’t up to snuff fixing things that are broken is a humbling experience.  But it has to get done. 

My problem though is how many gallons of ink has been spilled over the last decades decrying the “retirement crisis” and Americans lack of income in retirement using these very numbers from the CPS?

And, yet, it’s all been false. A crisis has been created that doesn’t exist. Why? Because no one actually took the time to read from where the numbers came, they just took it on faith the numbers were correct!

Unfortunately, this kind of blind-faith happens all over the place.  I want to point your attention to this article, “This Statistic Changed My Entire Perspective of Climate Change”.

The author states At this point, 97% of climate scientists are in agreement that climate change is real, and that it’s our fault — that is, human activity is causing the shift in global temperature and weather, rather than Earth’s natural climatic ebb and flow. With such a definitive, well-researched conclusion, it comes as no surprise that the facts have started to trickle down to the American public.”

This may be the most mind-boggling idiotic thing you’ll read today.  Why? Because the 97% number is a fraud. Anyone who did even the basic research on this would know that.  Yet, the author of this piece even goes as far to state “(w)ith such a definitive, well-researched conclusion”.  UGH!

Obviously, this guy didn’t read ANY of the research, he just took it on blind-faith the authors of various articles he read did.  As such, he spreads falsehoods that have certainly led people down a path they didn’t need to go.

No different than the massive amounts of retirement crisis doom-peddlers. People read this tripe and sadly don’t take proactive action to see if what they are reading is actually applicable to them.  They just take it on faith and stay in their crappy, old jobs because they’ve been brainwashed to think they can never retire. 

Don’t do that!  In this day and age of headline propaganda you really need to doubt EVERYTHING.  Don’t just cite some guy, myself included, you think knows what he is talking about without actually looking deeper into the facts. 

Trust NOTHING! That is the only moral of the story I can provide here. 

We all know the political media is biased, right? I certainly hope no one is debating this anymore.  The sports media is actually even further to the left. Which is why a moderately-left guy like Clay Travis can build quite a following in sports-media by not kowtowing to the “I Hate America” crowd. 

But the financial media is different, right? 

NO!  They are just as biased as any other media.  Unfortunately, many Americans fall for their nonsense and continue to work in crappy, old jobs longer than they should because of a fear of running out of money in retirement. Take this recent article from Fortune, for instance. ‘The new rule of thumb is $3 million’: Retirement planners have some sobering advice about how much you’ll need to save’.

This, my friends, is just one of many articles that all scream the same thing: “You don’t have enough money to retire!”  And they’ve been screaming this for years. Reminds one of the climate fraudsters actually. Isn’t Miami supposed to be underwater by now? Hmmmm…

Let’s dissect why this is nonsense. What is the median Household income in the United States today? It’s around $62k a year.  The median means half the Households in the U.S. make less than $62k and half make more. Thus a household making $100,000 income in the US is well above the median, right? Of course. So, let’s say YOUR household has $100k a year income as you grind away at your crappy, old job.  How much of that $100k are you actually bringing home?

Well, you’re going to lose 7.65% right out the gate to FICA.   You’ll also have income taxes to pay to the Feds and your state. 

If you’re married filing jointly and under the age of 65 you’ll have a Standard Deduction of $24,800. Unless you have HUGE mortgage interest, tithing and various other deductions your Taxable Income in this case will be $76,200.Your total income tax to the Feds will be roughly $8,700.  If you live in the state of Georgia, as do I, you’ll pay another $5,000 or so to Governor Kemp. 

So, on that $100k GROSS income you’re living on around $80k after taxes. Oh but wait, you’re certainly saving for retirement, no? After all you need not $1, not $2, but $3 MILLION in order to retire!

We will just say you’re putting away 10% of your income. That will save about $2k in income taxes but from a NET cash flow perspective you still have $8k less a year to consume while you’re working.  This means out of $100k gross income you’re actually only bringing home around $72k. 

Don’t forget you probably have a mortgage.  We’ll just say you have a typical 3/2 1500’ home in a typical suburb. Median home values in the U.S. are around $250k.   Let’s say you live in Fulton County, GA.  Property tax on that home will probably run you $3k a year. Homeowners insurance another $1,500 or so.   Those expenses will stay with you in retirement. But you know what expense won’t? Principal and Interest on your mortgage.  For every $100k you borrow it will run you a bit more than $500 a month in principal and interest. 

Assuming you borrowed $200k for your home your P&I (principal and interest) is around $1k a month, or $12k a year.  We obviously need to deduct that $12k a year from the $72k we’re bringing home and suddenly we’re only netting $60k a year after taxes, retirement contributions and mortgage payments.

Hmmm…this is getting interesting, no? Say you have a daughter at GA Tech, as I do. Say you have other kids that cost money for sports, school, broken bones, braces, eyeglasses, never mind more tuition, as I do.  You don’t even want to know how much all that costs. But for simplicity we’ll just say it costs $10k a year to raise your children.  

Now, that $60k you’re netting is actually down to $50k.  

So, $50k is what you are actually living on, even though you gross $100k.  Oh, I hear you now, “But Josh, even if this is correct, according to the 4% rule we’ll still need $1.25 MILLION!” 

No, no you don’t.  I won’t get into why I don’t follow the 4% rule here, simply because we won’t need to go that deep in this analysis to prove you don’t need 7 figures to retire. I’ll just have you look at your Social Security statement to get a glimpse of how much you’ll receive in benefits. 

If you made the inflation-adjusted amount of $100k for the bulk of your working career, the Social Security Administration calls this indexing, you’ll get $2,790 at your Full Retirement Age (FRA). Your FRA is 67 if you were born after 1959. Born before 1960 and your FRA is 66 and some months. 

Remember, you are married too. Your spouse will get no less than HALF of your Social Security benefit at her FRA, depending on what her own benefit is.   In this scenario, assume she stayed home to raise the kids, as my wife did, and worked sparingly, her benefit will be $1,395, half of yours.  

Add your $2,790 benefit to her $1,395 and you get a monthly benefit of VOILA! $4,185. Oddly, $4,185 puts as right at an income of $50k a year. Amazing, huh?  Needless to say, if your only income is Social Security you pay no income tax either. So, taxes are a non issue in this scenario. 

We’ve already established that after taxes, mortgage, kids and retirement savings your spending is $50k a year and magically your Social Security income is also $50k a year.  “But Josh Social Security is going bankrupt!”  

No, no it’s not. 

“But Josh, Social Security will only pay 77 cents on the dollar in 2034.”

Is that true? Have you actually read the Trustees report to see what assumptions they’re using?  Let’s just say there is a lot to be optimistic about relative to what you hear from the doomsayers.

But even if true, tell me exactly when the government has actually taken MONEY away from the most reliable voting bloc in the nation, retirees.   I’d love to see that. I’d also love to see what happened to that politician who advocated such a proposal. 

Only thing I can think of is Dan Rostenkowski. To say the least, no one’s Social Security benefit has been cut. 

But hey if you think our politicians are actually going to TAKE MONEY AWAY FROM VOTERS I’d be happy to make a wager. Just get in line behind those who I’ve offered to purchase their beachfront homes for half price due to their fear of sea level rising. 

In the meantime, don’t listen to the media with their doomsday declarations.  They are either ignorant of reality or they’re deliberately lying. When it comes to the media, well it would not surprise me if they were both.

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