Bloomberg interviewed Alicia Munnell from the Boston College Center for Retirement Research. She of course has come to be a thought leader for what ails the Social Security system. Shockingly it boils down to three things; cutting benefits, raising the cap one way or another or some combo of both. I’ve framed it numerous times by saying that something will have to give.

Included in there is what I will bluntly call nonsense about replacement rates as in how much of someone’s income Social Security is intended to replace. There was talk in the interview about replacement rate dropping from 36% to 27% over some long period of time. It’s nonsense for a long list of reasons including people making well above the cap won’t get anywhere near that sort of replacement rate, replacing X% of your income focuses on the wrong thing, income versus spending. Many people plan to have their mortgage paid off by the time they retire, someone who is retired is less likely to save for retirement. Another point missed by replacement rates is people who live below their means.

Social Security wants people to know how much their benefit will be, they send it to us every year. What’s your benefit (and what’s your partner’s benefit if applicable)? I’ve disclosed before that my FRA is $2800 (today’s dollars) starting in 2033 (I would note I hope to still be working past that age but it might be difficult to attract clients when I am 80). If my wife takes her spousal benefit at 65 in 2037 she would get $1200. That adds up to more than our fixed monthly expenses including the mortgage on a house we moved into in 2012 that we’ve been paying extra on and should be paid off in four years.

We also bought the other house on our road earlier this year and have been renting it out on Airbnb with a lot of bookings (better lucky than good). It should be paid off when I am 64 and if we stick with it and continue average $1000-$1500, that plus our Social Security for monthly living would mean the portfolio could be for medical expenses and traveling.

The gist of the article was that SS benefits must be cut in 2034 to 77% of what people are now told they will get. For us that means a drop from $4000 starting in 2037 to $3080. That is clearly a big haircut, if that is what happens, but we have 20 years to plan for it. We all do, more if you’re younger.

Steve Mnuchin was quoted in Barron’s over the weekend as having said “this has been a great eight years for rich people in New York, in California, but for the average American, they haven’t seen wage increases.” Wages of course have stagnated at the macro level but anyone planning thoughtfully could have been living even a little below their means, saving at least enough to get a 401k match and also benefited from the 162% rise in the S&P 500 over the last eight years (per Google Finance), just like the wealthy people in California and New York. Yes there can always be unfortunate life circumstance that can get in the way of such a generalization.

There is a terrible lack of savings in the US, we all know this. I saw one version of this misery where something like 1/3 of the population doesn’t have $500 in their checking account. There’s a victim mentality embedded in how the country views this as a whole. I don’t know how this plays out (people hitting retirement age with no savings and a Social Security System that has to reduce benefits is the baseline), maybe something good happens but if the outcome is bad, I don’t want to be a victim and anyone else not wanting to be a victim needs to be ready for bad news from Social Security. If you’re prepared for a bad outcome and there is a good outcome, no harm no foul, you’re better off. Not so the other way.