Social Security Fixes in the United States

A lot of ink has been spilled over the last 10 years on the state of the United States’ social security program. For those outside the US, this is the base retirement investment program, which takes 6.2% of someone’s salary, and another 6.2% of the salary from the employer, and uses this tax to pay for current retirees. Most folks think they are paying into an “account” for themselves, but it is actually sort of a giant Ponzi scheme, where current tax money is used to pay off outstanding bills. For folks in the FI community, Social Security is a part of the program, but probably not a major part.

Like so many Ponzi schemes, it is predicated on getting more and more people/taxpayers to pay into it in order to keep it rolling. Unfortunately, the folks in the US have not been having 3+ kids to help defer this, and the bill for the “Baby Boomers” is coming due. The taxes taken in are now not enough to pay current beneficiaries, and so the system is spending up the excess it has built up over the past decades. Depending on which accounting system you use, the year it goes “belly up” is around 2032. Unless something is done, benefits will be cut to 75%, which could be very serious for the ones who most depend on social security.

This happened previously, and the two sides of the political aisle got together in the 1980s and came up with a series of items (extend retirement age, tax benefits, etc.) to fix it, at least for the next several decades. Well, we are fast approaching the time when we need to do something similar, but both sides of the US political aisle seem to not want to even discuss it. Probably because it has been called the “third rail” (i.e. the electrical rail for trains) for politics – to touch it means death.

Which is sad, because the closer we get to the magical date, the more severe the changes that will need to be made in order to keep it solvent.  I recently read a report from the Society of Actuaries (an accounting field that specializes in longevity, insurance, etc.) on potential fixes, and what percentage they could go to in fixing the problem.

  1. Raise the retirement age to 70. Life expectancy is longer, but it could be hard on people with physically demanding jobs or who are disabled. +68% of fix
  2. Reduce the cost-of-living-allowance (COLA) by a certain percentage. A congressional commission felt the consumer price index (CPI) was overstated by 1.1%, meaning the COLA was too high. However, these would be cumulative, so as retirees get older, they fall further behind in purchasing power. +37% fix
  3. Reduce benefits by 5% for future retirees: Puts everyone in the same boat, but would hit low income the hardest. +26%
  4. Increase the number of years used to calculate average wage from 35 to 40 years. This would encourage people to work longer, but would hurt folks who work less than 40 years, especially mothers. +24%
  5. Affluence test: Reduce benefits for those whose total retirement income exceeds $50k/year. This preserves the benefits for most, but discourages savings and encourages people to hide assets. It also changes Social Security from a universal, “all in this together” program, to one of need. Would hurt support for program. +75%
  6. Raise payroll taxes from 12.4% to 13.4%. Would not hurt because real wages are going up, but we may also have to increase Medicare payroll tax (it is in even worse shape) so total taxation would be burdensome. +53%
  7. Increase wages to social security tax: Currently capped at , this would make Social Security a worse deal for higher incomes, further eroding universal support
  8. Invest 40% of Social Security Trust Fund in private investments. Could boost returns with less risk to individuals, but this would be 5% of private market. Stock voting and selection could be politicized. +48%

While there does not seem to be one single answer, the best way to do this is with a series of 3-5 of these, and this will get us over the 2032 “hump.” All we have to do is have the political will to do it.

That is the problem.

Sorry to be a bit of a bummer, but we all need to be planning on our financial future, and for those in the US, this is an important part of it.

Mr. 39 months

The Journey/Struggle is half the fun….

The other day I was going into a local BJ’s store (a mass marketing store that is membership only – you can buy items in bulk for significant savings). It turned out it was time to “re-up” our membership, so I had to take out my membership card to get a number in order to do it. In looking at it, I was struck by the picture on the back. There, grinning back at my was my early 30’s self, with a big shock of dark hair, and not too many lines on his face.

I thought about my life at that time (recently left the military, just starting out in logistics job, a home and mortgage that was almost 4x my take home pay, etc.) There were going to be a lot of struggles ahead, a lot of stress and tension, and a lot of decisions that, for good or ill, were going to shape my life. How interesting to look at that face, and know now, what I didn’t know then. How much better would I have done if I had adopted some of those lessons (especially FIRE lessons) back in the early 1990s.

Recently I’ve learned that one of my nieces is in a lot of debt. I have thought about assisting (with the approval of her Mom, beforehand) but I’m holding back. Part of it is the knowledge that if we just give funds, she’ll wind up in the same spot. Part of it is the notes above – the journey /struggle in life is part of the purpose. There are lessons to be learned, experiences to be had, and things to do that, if someone steps in, you might not gain. These may end up biting you on the butt later on.

One of the benefits of the FIRE community is the sharing that folks do, the lessons they’ve learned that they want others to benefit from. I do a lot of reading, both online and through books, just to try to gain the lessons from others. Still, in the grand scheme of things, I don’t think I would trade any of the lesson’s I’ve learned in – they have made me who I am. If I had to tell my younger self anything, it would be that “It’s all going to work out OK, in the end.”

I hope its working out well for all of you

Mr. 39 Months

Jefferson’s Ten rules

Thomas Jefferson, one of the founding fathers of the US and the writer of the Declaration of Independence, lived a long and fruitful life. He was the first Secretary of State for the US, and the 3rd President of the US. Both he and his peer (and President #2) John Adams dies on the same day, July 4th, 1826 – 50 years after the publication of the Declaration of Independence. Exactly 50 years after!

Jefferson was known for giving advice to his family, friends, and associates. In 1825, one year before his death, he wrote down his “Ten Rules” and abbreviation of his “Canons for the Conduct of Life.” They have gone down through the years and been reprinted numerous times. I happened across them while on vacation last week, at one of the historical sites we visited, and thought I’d reprint them. Many of them would make their way into an instruction book for FI.

  • Never put off till tomorrow what you can do to-day.
  • Never trouble another for what you can do yourself.
  • Never spend your money before you have it.
  • Never buy what you do not want, because it is cheap; it will be dear to you.
  • Pride costs us more than hunger, thirst and cold.
  • We never repent of having eaten too little.
  • Nothing is troublesome that we do willingly.
  • How much pain have cost us the evils which have never happened!
  • Take things always by their smooth handle.
  • When angry, count ten, before you speak; if very angry, an hundred.

So what words of Wisdom do you live by?

Mr. 39 Months

Focus on the Present, not on the Past or Future

The Retirement Manifesto has an excellent post on not focusing on the past (or too much on the future). Enjoy the present.

In it, he discusses some family issues with Alzheimer’s (living in the past) and the tendency of FIRE folks to focus too much on the future, at the expense of enjoying how you live currently. He also introduces a new phrase – TPA (time phase allocation) where you determine how much time you want to spend on the past, future and present, and what it might mean for your mental well-being.

This harkens back a bit to the reading and work I’ve been doing on Stoicism. The stoics are very big on not focusing too much on past mistakes and issues. They are gone and outside your control. Stoic philosophy really is about focusing on what you can control (often times, just your thinking and emotions) and to let go of things outside of your control (other people’s action, historical events, etc.).

For many FIRE folks, this can be a real stumbling block. We find out about FIRE, do a lot of reading, run the numbers, set up our savings, get our FI number, and then……wait. We keep reading, adjusting, tweaking our investments, savings and plans. We should also be living for today, and budgeting money to live for today (rather than living like monks).

I have a deferred account at work, where I can put a portion of my salary away (in addition to my 401K) that I can get paid later, or after I leave the company. I dropped it this year from 25% of my salary to 20%, just so we’d have a few extra dollars for travel and enjoying life now.

What are you doing to live for today?

Mr.39 Months

I think I’m going on a diet…

While one of my goals for this year is weight loss, it isn’t a new food diet I’m talking about.

Last week I had to travel out to an area of Pennsylvania on business (a 2+ hour drive) so I woke up early. I had not slept well the night before, so waking up early already had me cranky. In my normal morning “ablutions” I tend to read some blogs and websites in the morning as I’m getting ready. Unfortunately, these aren’t the FIRE blogs, which tend to be upbeat and action-oriented. You may be able to see where this is going…..

This day, like so many others, the blogs were full of doom and gloom about a variety of topics. I don’t want to get too political here, but it seems like both “sides of the aisle” in the US are predicting the end is near, and we should all just go and prepare for the zombie apocalypse. Relations between the sexes is in the tubes, nobody can afford to start families and have kids, and we are all going to die, due to war, famine, pestilence, etc.

As you head out on the road, if you listen to NPR or talk radio, you get bombarded with the same stuff. Again, it doesn’t matter what your views are, it seems like everyone is selling “distress and sadness” right now.

Yet the unemployment rate is low, wages are up, the investments are up, people go to work, take their dates out, their kids play and go to school, and most folks are doing fine. The people in the FIRE community are living proof that folks are taking action and doing what is needed to make it.

I think its just the “media” (be it mainstream news, blogs, websites, etc. ) with the clickbait articles and their “if it bleeds it leads” attitude which is making me crazy/depressed at times. So I’m going to try and go on a news diet somewhat, where I don’t check in as much, and work more on my interests and goals. I won’t be ignoring the big problems, but I’m going to try not to concentrate on them so much, especially ones where I have no hope of influencing the end result.

Consider it as me taking steps to keep my sanity. I hope you are keeping yours.

Any thoughts?

Mr. 39 Months

Good article on Frugality

Barry Ritholtz has a good article titled “buy yourself a F*^king   latte”, in which he takes Susie Orman and other finance folks to task for their comments on how saving on expensive coffee can result in huge savings, and how folks that indulge themselves are putting retirement money in jeopardy.

Like most folks in the FIRE community, Mrs. 39 Months and I have practiced a frugal existence, at least in terms of the society in general. I’m sure there are folks here that are way more frugal than we are, but we do OK. Still I believe (and have written about) the need to live your life now, not just save for some future date that may or may not be there. I don’t believe you should neglect your savings, but you can’t just go “all work and no fun” in life. Like a diet, you will burn out and end up cheating – and hating yourself afterward.

The key to FI is intentional living – understanding that you have the power to make the money decisions, and then making them in such a way to bring you joy throughout your lifetime. Save a lot and think about the fun you’ll have when you reach FI, but also spend some time, money and energy enjoying life today. Depending on your religion, this is the one chance you have to live it, so don’t restrict yourself too much.


Mr. 39 Months

A pre-retirement test you should add to your “prep list”

I was listening to one of my FIRE/Finance podcasts this week, and they discussed an interesting test or quiz you should consider as you prepare for early retirement. A lot of us who have caught the FIRE bug dream about our time post-FI, and do a lot of thinking/considering/planning for what we will do, what our day will be like, and how we will occupy our time. For many of us, it is the fuel which keeps us going as we accumulate the resources to be financially independent.

Yet a lot of folks who are in the community have not been able to get their significant other as “pumped” as we are in reference to this, and often discussions do not go very far. A lot of our spouses just aren’t that turned on by finances, Roth conversions, and travel hacking. I know, because I have constantly tried to involve Mrs. 39 Months in our finances, but she resists. The best I can get her to do is look at our net worth statement at the beginning of each year and file it away.

So the podcast suggested you ask your significant other a simple question, one that they probably could wrap their heads around and provide feedback on. The question for your partner was “describe a typical day for yourself post-retirement.” From this, you should be able to tell a lot about the sort of life you may lead, some potential budgetary points, and how compatible your plans are with your partner.

Well, for Mrs. 39 Months, I got this:

  • “Wake up late”
  • “Spend time in morning to meditate and stretch”
  • “Leisurely breakfast”
  • “Time to take walks outside”
  • “Time on my arts & crafts (she plays the dulcimer and makes leather shoes and jewelry)
  • “Some travel”

For a little background, Mrs. 39 Months worked for a company for 18 years, where her hours were 10am – 6pm. She had time for a relaxing morning, and she enjoyed it. Eventually the company was bought and moved, and she didn’t like the commute, so she left. Now she has to head to work at 8am, and she doesn’t enjoy the earlier mornings, and how it affects her schedule. Thus, her desire for a more leisurely morning.

It also shows that she doesn’t have a desire for a lot of money-intensive actions in our retirement. We can probably maintain our current lifestyle (though I’ll probably bump up the numbers for travel in our budget). This will help me plan better and keep on track.

So I’m glad I asked, and I hope this will help spark a continued interest by her in our retirement plans.

I hope you folks are communicating well as you progress!

Mr. 39 Months

Your greatest weapon in reaching FI (or your greatest weakness)

There has been a lot written about the strategy and tactics used to achieve FI and set yourself up for a lifetime of freedom.  Discussions on investments, frugality, job success, and a host of other topics. I want to discuss what is probably the greatest financial decision you will have, and one which will make or break your chances of financial success. That decision is – your choice of spouse or significant other.

The world is full of a long list of stories in which one person makes the money and the other person spends it (or they both spend it). It is often said that opposites attract, and that you marry your opposite. Thus savers marry spenders and vice-versa. The result is often fights over financing, as one person struggles to make the money, while the other one spends it just as fast (or faster).

Many people go into marriage swiftly, with very little knowledge of their prospective mate. Others take the time to get to know that person, and in today’s society, many more are living together for a period of time prior to tying the knot. What this allows is for someone of a ‘FIERY’ bent to get to understand their potential partner and to understand how they will aid or detract from their goals – not only their FIRE goals, but their other life goals.

I’ve recently seen several stories where one person called off a wedding after finding out the other was in significant debt, and hadn’t told them. There is also that story of the guy (I believe in Colorado or Texas) who married a girl and was with her for 3 years, while he helped her pay off her student loans. On the day the last payment was made, she filed for divorce. Ouch!

The world is also full of stories of couples on the same sheet of music, who complement each other and help each of them move towards their lifetime goals, and achieve FI. Most of the links in the blogs to the right are of couples (or one of a two-person couple) detailing their success at working towards their goals. It should be obvious, but I’ll say it – Life is much easier and sweeter if you have someone to travel it with you.

What brought this post on? As some of you have read lately, I have been a bit down in the dumps, and Mrs. 39 Months has noticed. She has sought to cheer me up at times, and took me out to dinner for my birthday, while inviting friends. Her birthday present for me was a new book, The Happiness Trap, by Russ Harris (a future blog post/book review). Basically, my partner has seen my troubles, and is working with me to assist (as I have done for her in the past).

Mrs. 39 Months is also extremely frugal. Just last night, she was arguing with herself on whether to buy a certain tool for one of her crafts (making leather shoes) and was not sure if she wanted to spend $40 on it. This is a woman with over $100K in the bank (our emergency fund). Needless to say, I gave her a kiss, told her how much I loved her, and then suggested she go ahead and buy the tool. I am still not sure she did, though.

So take the opportunity, if you can, to thank your spouse or significant other today. Life is better with them in your life.

Mr. 39 Months.

As the FIRE slowly burns out….

Well, my life has been changing this year, especially my work life. As many of you know, I’ve had several  posts on how I’m feeling distanced from work, how it appears the technology may have passed me by, and how, as I close in on my FIRE date, moral has dropped somewhat.

Its fascinating though, because when I get a project that requires my skills and experience (and it happens a lot) I can dive in and spend hours on the analysis and solution. The time will pass quickly, and before I know it, the day has gone by, and I’ve succeeded in coming up with an answer for the operations. Or we will be doing an implementation of new business in a warehouse, and I’ll be the engineer who brings a lot of the component projects together and gets thanked at the end. Those are the reasons I continue to do the job. It’s the actual work (not the managing people) that I enjoy.

Still, I have noticed that I don’t have the same thrill to get started in the morning lately, and I’m slow to walk in to work from the car. My boss is in town this week, and all I can think of is ways to avoid interacting with him. I have a ton of project work due, and more being piled on, so I have a valid excuse. Still, its odd for me to not be brown-nosing or seeking to gain additional information on the organization and my role in it.

This is part of the process of me “drawing down” my involvement. In a couple of months, my responsibilities for management will be significantly reduced, as a peer will be put over me and my group. It is what I’ve wanted and worked towards, so I should be happy. Still, being “out of the loop” and not being one of the hard charging leaders is very different from my previous professional career. It is a difficult transition to make – probably similar to the transition I’ll make to retirement.

I hope your work and/or retired life is fulfilling and  you aren’t filled with too much angst.

Other Folks who got/are getting burnt out

Mr. 39 Months