Living Large on my $92,430 Social Security Annual Income!

That’s right, when my wife and I start drawing Social Security it will be worth $92,430 a year.  That’s almost the same amount as my one day a week consulting gig earns me now in 1099 income.  Think about that, Social Security alone, with no other sources of income, no dividends, no interest, no pension and no withdrawal from my investments will be equivalent to $92,430! I’m guessing you think I’m using some clever trick to inflate that number, but trust me, I’m going to be transparent in showing you how $92,430 is an absolutely accurate determination of what Social Security will “pay” me when I start drawing it. 

Like any blogger I love opening with a counterintuitive challenge to conventional wisdom, because it begs the reader to hang around a little longer just to see how in the world I came to such a ridiculous premise as this.  There are not many topics on which there is universal agreement in the personal finance, FIRE and financial independence communities.  But if there is something on which nearly everyone agrees it might be that Social Security isn’t anyone’s answer to a rich retirement.  I hate universal agreement by the way, it almost always means people are drinking the same Kool-Aid, or as another blogger put it recently, it is hive mind thinking.  Let me take this opportunity to disturb the hive.   

Convention wisdom places Social Security somewhere on the spectrum that ranges from “won’t even exist in the future” to “benefits are too small to matter”.  This is probably due to the fact that the consequences of getting retirement planning wrong are so severe, and outside of this community a staggering number of people are not saving enough for retirement.  Finding yourself in your senior years with insufficient funds to live a life you enjoy may not leave you with many options.  Your work skills may no longer be marketable, your health might be declining making employment problematic or the jobs available may be unrewarding or even intolerable. The prospect of such a bleak outcome has led many pundits to write Social Security off as a false hope because placing too much faith in it undermines the incentive to save now for retirement.  There are also legitimate concerns that the program is underfunded and will have to find ways to reduce benefits to stay solvent.  I’ll steer clear of that debate, I’m talking about the current Social Security program which has ample funds to make no changes until at least  2035.

So I do admit there are good reasons to not pin all or even most of your hopes on your social security benefits.  However, I would like to propose the idea that Social Security is not an insignificant source of income in retirement.  And to do that I will use the only family I have total data access to, and that’s me and my absolutely awesome wife.   After careful analysis it appears to me Social Security will provide nearly 100% of my retirement income needs and I’m living a six figure expense lifestyle.  

“How?” you might ask.  Because you’ve seen over and over again that the average retired worker only draws $1,471 per month.  That’s equivalent to $17,652 per year.  That’s less than the cheapest of the frugalista’s spend?  Mr. Money Mustache didn’t even try to live on that little.  The very idea that the real number for you might be closer to $92,430 sounds preposterous.  But think about it, the average retired household has two wage earners so it should get twice what one retired worker gets, that brings the income up to over $35K which is still on the skinny side but starts to sound like a significant amount.  Still, it is a long way from equalling $92,430.

Here is how I came to that number for my future family income from Social Security.  In my case I have a 40 plus year working history counting my post retirement side gigs and for 35 of those years I made wages higher than the Social Security maximum.  But before you categorize me as a one percenter,  realize that the maximum was much lower when I started working in the Triassic Era.  My starting pay back then was only $18,000 but that was over the $17,700 maximum amount to which Social Security taxes were charged.  If you convert my starting wage from back then to today’s dollars it would be about $70K.  So that was very good money way back then but it wasn’t huge money.  And oddly because Social Security taxes only applied to the first $17,700 of income, I put just as much money into Social Security that year as Warren Buffet did.  And as time went on and the Social Security maximum taxable amount changed (it is $132,900 now!) I continued to earn above the maximum for my highest 35 years of income.  35 years is important because Social Security only considers your top 35 years of income when it comes to determining your benefits.   And because Warren Buffet and I both put the maximum amount into Social Security for all those years my benefits (and his) are going to be much higher than that $1,471 a month that the press likes to quote to scare people.  

The other huge factor is when you choose to take your Social Security benefits. Most people in this space already know this, but for every year you delay taking your benefit your monthly payment will go up 8%.  I could have drawn Social Security at age 62 but because I’ll defer until age 70 my benefit will increase from $2,271 (at 62)  to $4,010 per month (at 70).  Since my consulting hobby is bringing in all the money we need to live a rich life I feel good about waiting until 70 to bump up the size of that check!  And since my wife was a stay at home mom and doesn’t have a large benefit from her shorter earning record she can elect to receive half of my full retirement age benefit instead of hers, and that will add another $1,538 to the pot.  That will bring the total to $66,576 a year just from our two Social Security checks. 

Now you are probably wondering how I got from $66,576 to the $92,430 I claimed in the title of this post?  Let me show you, there are no tricks in how it works.  First gross income means nothing, it is what you have left after taxes that matters.  My 1099 consulting income has FICA and income taxes withdrawn so a lot of it disappears before I ever get to spend it.  That will change significantly once I’m on Social Security because only 85% of Social Security is Federally taxed and none of it is taxed by Arkansas.  Also no FICA taxes (Social Security, Medicare taxes) so if you adjust the $66,576 up to the equivalent taxable amount of a 1099 wage then it is the same as $78,564.  But wait, there’s more!  Right now as a private contractor, too young for Medicare, I’m paying $17,745.72 in private health insurance premiums and about another $3,000 in actual out of pocket medical costs that don’t reach our $6,500 per person deductible.    By the time we start taking Social Security benefits we will also be covered by Medicare and that plan only costs $7,891 annually.  The supplemental medical insurance will also reduce our prescription costs by $100 per month.  In addition the new deductible under Medicare will be $185.  The impact of all those things raises our Social Security income into equivalent 1099 (contractor) wages of $92,430.  

To be very clear I’ll only get checks for $66,576, but I’ll have exactly the same lifestyle as I have now earning $92,430 as a contractor. And I’m living extremely well on that amount, traveling world wide and all across America, paying country club, health club memberships plus five streaming service subscriptions and many hobbies that require fairly expensive equipment (a boat, an off road vehicle, etc.). For the last four years I’ve left our substantial investment portfolio and the income it generates untouched and lived on almost exactly that amount and lived quite well. 

So in spite of the myth that Social Security is not worth considering in retirement it certainly looks like I can live a multimillionaire lifestyle on just my monthly benefits.  I feel confident in saying that because using the 4% rule to estimate the value of a portfolio that could produce a taxable income of $92,430 would require $2.3 Million in investments.  Most people would consider that a fat FIRE portfolio and yet that’s what Social Security alone will produce for us.

 Now in the interest of full disclosure I can live a multimillionaire lifestyle without my Social Security benefits because, well, I’m a multimillionaire. However, the fact is I could have spent all of that portfolio by now and once I started receiving Social Security I could continue to spend as much as I desire without any other source of income.  My point is that if you contributed a lot in Social Security taxes you might get back more than you’ve have ever dreamed of in buying power in retirement.  

You might well ask why my wife and I don’t spend more, using the 4% rule we could spend multiples of what we currently do.  Even if we took a conservative approach we could double our spending easily.  But the fact is we spend all we want now, with no self imposed limits.  The house is paid for, we have no debts, our children are grown and support themselves.  We spend our time doing outdoor sports, consulting and volunteer work. We feel like our lives are pretty much wrapped in luxury when it comes to being able to spend our time doing what we value.  We do not desire more stuff than we have.  The fact is we will live quite comfortably, once we start drawing Social Security, on that alone even if I decide to stop consulting.

All that is to say, if you enjoy your job and plan to work for 35 years and if you earn at or near the maximum Social Security income ($132,900) then you are probably going to receive Social Security benefits much higher than you would expect, based on all the negative media coverage.  And if, in addition, you are a high earner living in a low cost of living area with a frugal mindset then you may find that big nest egg you’ve got for retirement will be an insurance policy  you’ll never need.  Instead of spending it for your own expenses you will get to give it away some day to your family, people in need and causes you believe in.  

A word of caution, this post is not meant to encourage anyone to rely just on Social Security.  In my retirement planning I ignored it completely and we saved at a rate that insured we would have a rich retirement without Social Security because it was the conservative way to go.  Plus over time the maximum income limits have increased at a rate that exceeded inflation so the program has a better payout for Boomers than it does for younger generations.  When I started work it wasn’t highly unusual for college graduates to earn at or above the maximum income of $17,700 but now it is a rarer situation for college graduates to start at over $132,900. So your results will not match mine unless you are a high earner and unless Uncle Sam finds a way to keep the program going without cutting your future benefits.

Another disclaimer is that the $92,430 value I use for the value of my Social Security annual benefit is in 2026 dollars.  To be precise it should be discounted to 2020 dollars which would make it equal to $86,046 in today’s money using the last five years inflation rate.  But that doesn’t change much, $86,046 is still very close to what my expenses are now, pre-tax.  Plus $92,430 made a better post title!

So what do you think, will Social Security still be here for you?

Do you think there is any chance you can get by on Social Security alone?  

Does it surprise you that Social Security alone can provide a fat FIRE lifestyle for some people?

Or do you see a gaping hole in my logic plus some dumb math mistakes, wouldn’t be the first time!

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