3 Things 9-11-23

Thing One

How Much Should You Rely On Social Security?

First, some quick facts:

Since its inception, the Social Security program has collected about $20 trillion and paid out about $17 trillion leaving a surplus of around $3 trillion

That surplus is projected to run out around the year 2035.

Roughly 66 million people are receiving social security payments.

For 61% of those beneficiaries, Social Security makes up a majority of their cash income.

For another third of those beneficiaries, Social Security makes up about 90% of their income.

Now, as for how much you should rely on Social Security in the long term, a good rule of thumb would be to assume at some point the benefits might be cut by a third.  To be clear, there is no official policy declaration on this point by any government official and all kinds of scenarios are possible as the depletion date draws near, but something will have to be done.  For those with a significant number of years until retirement, you would be well advised to plan for Social Security to be a much smaller part of your retirement income than the generations before you.  Then, if by some stroke of good fortune your plan ends up having underestimated your actual Social Security benefit, you will be that much better off. 

As always, let us know if you need help thinking through your plan.

Thing Two

Long Term Wins

We’ve shared various investing tips and insights over the years.  The one we’re re-sharing below is among our favorites because it perfectly encapsulates the idea of being patient and investing for the long term:

“Thirty years from now you’ll wish you had invested more in stocks.”

With that in mind, we’d like to share some interesting information about several 30-year chunks of time that we found at awealthofcommonsense.com.

First, what was going on in the world:

1926-1956: The Great Depression, a stock market crash of more than 80%, World War II, The Korean War, and four recessions.

1956-1986: The Civil Rights Movement, the Vietnam War, a president was assassinated and another forced to resign, an oil price shock from the OPEC embargo, double-digit inflation and interest rates, and six recessions.

1986-2016: Black Monday in 1987, the Savings & Loan crisis, Desert Storm, 9/11, wars in Iraq and Afghanistan, and three recessions.

Second, what was happening with stock market returns:

            1926-1956: +10.77%

            1956-1986: +9.63%

            1986-2016: +9.99%

Please note that the returns cited above are annualized (to show the average annual compounding rate) rather than cumulative for those periods. The cumulative rate (the ending price of the S&P 500 minus the beginning price) for any of those periods would have been much higher.  For example, the cumulative rate of return for the period from 1926-1956 was +1,843%.

Using the rule of 72, a person who got into the stock market and stayed invested from 1926-1956 doubled his money roughly every 6 ½ years. A person who got into the stock market and stayed invested from 1956-1986 doubled his money roughly every 7 ½ years. And a person who got into the stock market and stayed invested from 1986-2016 doubled his money roughly every 7 years. All this happened despite all the major shocks that happened during those periods. 

That’s something to think about, but not too hard.  Time is your friend until it isn’t.

Thing Three

Just A Thought

“If you want happiness for an hour — take a nap. If you want happiness for a day — go fishing. If you want happiness for a year — inherit a fortune. If you want happiness for a lifetime — help someone else.”

- Chinese proverb