Personal Debt Is Crippling

There is hope for solving our own problems.

Brett Arends had a scare the hell out of them article about Social Security that addressed the kicking of the can on the program's not too far off funding problems. He included how drastically undersaved people are and how simple it would be to fix with a tax increase, simple mathematically not politically. A while back I started to talk about the program being likely to fall to some sort of means testing which yes would be unfair and "punish" people for doing the right thing (saving and investing) but even worse is the idea that means could be tested down to a much lower level than you might intuitively think. Obviously I don't know, but taking from the rich is becoming more popular threat these days and the definition of "rich" could be very wide ranging.

What is your full retirement amount (FRA) scheduled to be? This is easily knowable from the Social Security Administration, they want us to know. Mine is $2900/mo. A 25% reduction (I think more like 23% is threat) takes it down to $2175. If I can hold out for three more years (this is plan A for now) then it would drift up to $2739 which is not that far from $2900. My reason for wanting to wait is not necessarily for the most optimal lifetime payout but to provide the largest survivor benefit to my wife if I die early. Obviously, between now and 67 I might change my mind. Our savings/investing is on track to make this plan plausible (that is living off of our savings and rental income in my 60's if I no longer have earned income sufficient to pay the bills).

That's a simple high level view of my situation, what is the high level view of your situation (I would encourage a detailed assessment too). Can you make 25% less in Social Security work or does it create a serious problem? If the problem is serious, what makes it so? For many that is debt. I found a Tweet from @AltcoinSara who said "Modern slaves are not in chains. They are in debt."

If you have a lot of debt then paying it off will be difficult but it can be done. For anyone without substantial savings then accumulating savings will be difficult but it can be done. You know what to do but it is not easy, make more than the minimum payment and don't buy stuff. Aside from making it better for yourself, you will be setting an example for others. I've blogged many times about the financial mess my parents made for themselves in their 40's (living way beyond their means). Understanding at least some of what was going on, I benefited from their mistakes.

The reason I write so many posts about lifestyle, spending and behaviors is that in addition to being more in your control, the reality is that people making a ton more money than you (being vague on purpose) are not likely to be happier than you. There is plenty of research out there to show diminishing returns for happiness once you get to $60,000-$75,000.

For many years I have said that if you make enough to pay the bills, set some aside for the future with a little left over for some fun then you're better off than most folks. An easy path to that outcome is no debt and living below your means (buying less stuff).

I refuse to take a bleak perspective on any of this when so much of the outcome can rely on our own behaviors, our ability to solve our own issues. The debt/spending threat is further reduced, or at least potentially so, by staying fit and healthy (more solving our own problems behaviorally). Every now and then when we called out on a medical emergency (fire department related) we'll have a patient in their 60's or 70's who takes no prescriptions (these few calls are for injuries). Think of all the money not spent. If you can make it to 80 without paying for medication, the financial benefit would be enormous not to mention the quality of life benefits.

There is room for optimism where being undersaved is concerned too. How old are you and how many years until you think you need to supplement your income from your savings/portfolio? Between now and then what might the stock market do? Looking at me at 52 and reaching my FRA in 15 years, the stock market could easily double in that time, not that the couldn't be a hideous bear market or two in there but doubling in 15 years would not be so great historically, not unprecedented of course but 100% in just 15 years is far from heroic. Please note, I am not trying to make a prediction, just pointing out that this would be a normal result if it happened.

Play around with your numbers. What do you have, how much are you saving and where could you end up under various market scenarios? A normal return sequence over the next 10, 20, some other number of years stand to bail out a lot of folks who are undersaved.

There is hope in solving your own problems.

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