You Can RETIRE on Social Security

Consistency Needed in COLA projections

Before I get started I want to let you know that every Wednesday at noon Eastern Time, I’ll be livestreaming on Youtube with my friend Amar Shah from Client First Capital.  We’ll be discussing investments primarily but anything else financial related that comes to mind as well.  Bring your Q’s and we’ll provide the A’s.   

I can’t begin to tell you how many people scoff at my COLA projections for Social Security.  I use the Trustees report, from their INTERMEDIATE assessment, of a 2.6% increase on average for the next 75 years.

Is that high? Is it low? I’ve no idea. But it’s based in sound reasoning: It’s what the Trustees of that very system project!

Some folks, though, dispute this.  I had a financial advisor comment on my channel that he only uses “real” numbers and thus 1.3% is his COLA because that’s what Social Security averaged over the last 10 years.

“Interesting,” I responded.  “If you are only use ‘real’ numbers, those based on the past, what are you using for projected Medicare increases?”

He didn’t respond.

Social Security COLAs

And I think I know why.  If you are going to go by what the last 10 years are for Social Security COLAs, is it not then logical to go by what the last 10 years are for Medicare premium increases too?

And if we use the last 10 years for Medicare Part B premium, you get around a 3.1% average annual increase.  Shoot, if you go back 30 years Medicare Part B increases have also averaged just over 3% per year.

Now you may be asking why I’m ignoring Part D in this. Well, that’s because Part D wasn’t around 30 years ago. It started in 2006. However, the addition of Part D won’t change the calculations.

Even more interesting is that Social Security COLAs and Medicare COLAs do not travel in tandem.  They are not correlated.  In 2020, for instance, Social Security COLA will be around 1.6%.  It appears Medicare Part B will go up by around $8 which is a 5.9% bump.

Medicare COLAs

Yet last year Medicare Part B went up all of $1.50, a 1.1% increase whereas Social Security was up almost 3%!  In fact if you look at the numbers for each you see there is absolutely no correlation between the two. I did a video on this here, by the way.

Here are the past actual premium increases AND projected increases via the Center For Medicare and Medicaid Services (CMS) Trustees report 2019.  This is page 58 by the way.

Medicare Trustees Report

What you see is less than 4% for the next 10 years, less than 5% for 25 years after that and less than 6% from then on out.  Will that come to fruition? Who knows. But do you have a better estimate? Just gonna pull it out of the air?

My issue is we SHOULD take the actuaries from BOTH the CMS trustees report and the SSA trustees report, both using their INTERMEDIATE models and go with that.  That is the best we have.  Your assumptions, Mr. Financial Advisor, are built on sand.   This would no different than a car tinkerer in his garage thinking he can improve an engine that Toyota engineers have built.  Not going to happen.

Discount Social Security COLAs?

What I think happens with many of the financial advisory business is they will discount COLAs for Social Security, all the while using HIGH COLAs for health care expenses.  They’ll throw studies around that say you’ll need $300k for health expenses in retirement all the while you’re looking at your total portfolio of $171k and thinking you’ll never be able to retire.

It’s all generated to scare you. Mind you, I can create any report with your current financial position to show you’ll be destitute and eating cat food OR you’ll be living like Bill Gates.  I’ll use the exact same numbers you currently have.  All I need to do is a tweak over here and one over there and VOILA! your’re broke or you’re rich.  Whatever I need the report to say, I can make happen. But that reporting is not based on sound logic.

My point here, my friends, is consistency is needed in one’s projections.  This is like the climate science alarmists when they use different start years to represent different catastrophes.   We’ll ignore the Medieval Warm Period, for instance. Or we’ll ignore the mass amount of cooling that happened in the middle of the 20th century and instead use our start year in 1979, to start at a very low point.  Very convenient if you want to establish a narrative. No different than showing your investment performance as starting in 2009. You will look like a genius!

By the way, I had an hour-long interview with Michelle Stirling from Friends of Science yesterday where we talk about the monied interests pushing the climate crisis scare-mongering. It’s all about the green for these people. And by green I mean the DOLLAR bill, not the environment.  You can find that video here.

Oh, I’m sure I’ll lose subscribers because of this. Don’t care.  The whole reason I started my business, Youtube channel, blog and this newsletter is to fight back against the fear-mongers, mainly in finance but also wherever we can find them.

Abundance is Everywhere!

You live in the most abundance the world has ever seen.  Not to recognize that, to be humbled actually by your luck and, if you’re Christian at least, get on your knees and thank the Lord, is to be irrational, frankly.

If you are dredging to work, again, because your advisor, or some software you found online, says you can’t retire until you have XYZ saved up, ask him… what are your assumptions? Why are you assuming this? Are they consistent? If he hems and haws, well, i’ll leave that for YOU to decide if that’s a person you want to continue to work with.

Just remember, please, the world has never been better.  Enjoy it, for Heaven’s sake!

Why the negativity?

One of the oddest things I’ve witnessed in my 5 decades on this earth is how people are taken in by fear.  It’s human nature, I realize, but man, oh man, much of this fear is simply irrational.

I did a video yesterday on a Wells Fargo-sponsored poll that showed 71% of Americans are afraid Social Security won’t be there for them.

(By the way, my book You Can RETIRE on Social Security is now available on audio.  Get it here.)

Now, mind you, I take this with a grain of salt as I trust polls anymore as far as I can kick them.  Modern-day polling is used to establish a narrative, not to survey it.  As such, I’m not surprised a financial services company would sponsor a poll that purports to show Americans fearful of retirement.

Ironically, Wells Fargo just happens to have solutions, and, by the way, the solutions Wells offers are very, very popular. The polling shows it.  If only Congress would act… BWHAHAHAHA

Anyway, the idea Social Security won’t be there is just silly. I’m sorry if this offends you but if you’re building a retirement plan without taking Social Security into consideration, you are wrong.  That’s all there is to it.

Is Social Security fully funded? Of course not.  Name one government program that is.

Do some changes need to be made to Social Security funding? Sure, as I’ve stated a million times to Sunday, according to the Intermediate assumptions on the Trustees report a simple payroll tax increase of 1.35% to the employee and employer and we’re done.

And that’s assuming the Intermediate assumptions are actually correct.  Yet the Intermediate assumptions have an unemployment rate of 5.5% from 2027 until 2094.

After a rock-solid jobs report yesterday, we are at 3.6% and have been under 4% for quite some time now.  Is 3.6% an anomaly? Hardly

“The unemployment rate in Japan climbed to 2.4 percent in September 2019, rebounding from near 30-year lows and topping market expectations of 2.3 percent. The jobs-to-applications ratio fell to 1.57, the lowest since November 2017 and below market expectations of 1.59. Unemployment Rate in Japan averaged 2.72 percent from 1953 until 2019, reaching an all time high of 5.50 percent in June of 2002 and a record low of 1 percent in November of 1968.”

I cite Japan here because I personally think we’ll mimic their economy for years to come; An aging population; large debt to GDP levels, yet low inflation, low unemployment too. And frankly, lower growth.

Yes, Japan isn’t immigrant friendly. I get that. And that may be a defining difference between us and them. I don’t think so actually.  With the vast amounts of immigration to the States in the last 30 years here we are, 3.6% unemployment.  Growth at 1.9%.  Interest rates way low, inflation as well.  Just like Japan.

Now, back to the Social Security Trustees report.  The interesting thing that naysayers will say (assuming they actually read the thing, which is a far-fetched assumption) is that the Intermediate numbers expect much higher interest rates than we have now.  As such, the Social Security “trust fund” won’t receive as much interest income as the Intermediate report projects.

I find this an interesting take.  No one suggests the so-called Trust Fund will have any assets in it come 2034, no?  So if no assets in the Trust Fund, why would interest payments on those assets matter, if there are no assets in which to draw interest?

This argument is like saying that Charlotte and I need high interest rates at the bank in order to retire.   But we have NO money at that bank.  Thus high interest rates do nothing for us. Low interest rates are irrelevant if we have no money either.

Is the “trust fund” fully funded? No!  Soon (2034), it’s only going to have enough receipts from payroll taxes to pay 77 cents on the dollar, again under the Intermediate assumptions.

So, low interest rates are irrelevant for the most part.

But what is NOT irrelevant are the number of people actually paying payroll taxes, i.e., the number of people working.  Low unemployment means a heck of a lot of people paying into the system with each paycheck they receive.

With a population of 330 million or so, a difference between an expected 5.5% unemployment and we’ll just say 4% is a huge, HUGE, number, meaning the payroll tax receipts are way higher than the Trustees expect.

But even this piece of positive news doesn’t matter.

Ultimately, what matters is the people who vote.  No politician is going to allow Social Security to go away.  A politician has one goal and one goal only, re-election.  If a politician advocates reneging on the pledges to the taxpayer regarding Social Security, voters of ALL political stripes will kick that person to the streets. And rightly so.

I’m an anarcho-capitalist.  Which means I despise the statism of a huge government.   But even I value Social Security.  I would not have voted for it in the 1930s if I were in office.  But the facts are it IS here. I paid into it. I fully expect to receive benefits from it.  And I will.  You will too.

Does that make me a hypocrite? Being against big government while using benefits derived from it? Not any more than also using the GI Bill to pay for my college education.

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