There is probably something masochistic about reading “Retire by 30” blogs when you’re 50 and still working. I mean, let’s face it, in your (my) particular case, The Man WON. It’s too late to stick it to him.
But I still read them. I enjoy Mr. Money Mustache and his friend Brave New Life, and I enjoy the spin-off trails they spawn. They’re both pretty smug, MMM more deliberately so than BNL. Both were engineers in their 20s, earned six-figure salaries while maintaining frugal habits, and one day each had the epiphany, “Hey! I’ve got, relatively speaking, a shit-ton of money in the bank. It’s not what the ‘experts’ say I would need to retire, but if I apply my engineering brain to the problem, I bet I could work out a solution.” And they did. Their solutions turned out to be awfully similar: They lived small, and they ditched one of the biggest financial drains on most American households: the two-car, two-commute suburban model of bread-winning. Each found a way to get down to one vehicle and a bicycle. After all that downsizing, each found that in no time at all, they had…enough. Not Rockefeller Money, but enough for a frugal person to qualify as Fuck You Money. Which is all any of us really needs.
So, at my age, what’s the point? That is a really good question. Because I think there really are situations in which it just doesn’t make any sense to cut back on lifestyle to even try to get out from under debt. The debt is too huge, and you’re too old. A point at which your best revenge is to die OWING a shit-ton of money to The Man. “Ha Ha!” You cackle from the crypt. “Come collect it NOW!”
But then, I think there is a razor-thin line between managing to pull off that strategy successfully or instead, because of just a slight miscalculation, winding up as one of those Wal-Mart greeters whose Social Security checks don’t quite cover the rent. Those folks never get to retire at all. The Man loves Wal-Mart greeters.
I don’t want to be a Wal-Mart greeter. So there’s reason number one to take a good hard look at the frugality strategies employed by the younger, smarter set.
And there’s another way to look at it as well. You know, “early” is a relative term. Sure, 30 is early to the extreme, as exemplified by Early Retirement Extreme. But really, isn’t 64 earlier than 65? Doesn’t any extra day of freedom strike a blow for the cause? I think it does.
In the spirit of that insight I present today’s exercise. Today I’m going to look at early withdrawal of Social Security.
You know what? Those effing elder Baby Boomers pulled a fast one on me–They went and pushed “full retirement age” BACK from 65 to 67 for anyone born after 1960, which is getting into “Gen X” territory, barely. That’s where I sit. Look out Millennials! Gen X is probably looking to screw you, too. But I digress. Point is, here’s the current chart provided on the Social Security Administration’s website, representing what you give up for each month prior to “full” retirement age using a theoretical $1K/month benefit as the example:
So the earliest you can collect is at age 62, and for people born after 1960 the benefit reduction at that age is a whopping 30 percent, down to $700/mo instead of $1K/mo. So you know that at some point after age 67, you will wind up collecting less overall IF YOU LIVE THAT LONG. What a great gamble to take, huh?
My question at the moment is, how big of a gamble is it? I whipped up a quick spreadsheet to answer that question for myself, and I came up with the below:
As you can see, without even factoring in the time-value-of-money (the acknowledgement that a dollar given to me at age 62 is worth more than that same dollar given to me at age 67, how much so depending upon rates of return), I have to reach age 78 before I even begin to get into the negative range for taking the early-withdrawal option. I’m sure that if I threw in a time-value calculation, say a three percent rate of return, I’ll be looking at being age 80 before I begin to see any penalty for early withdrawal.
Now, I like to be an optimist. Like MMM, I’m “planning” to live to 100. But Mr. Genetics is laughing on the sideline. Males in my family are lucky to make it to 60. My dad didn’t. His twin brother didn’t. My mom’s father didn’t. So you can bet your ass I’ll be collecting my gummint check at 62, if I make it there.
So that’s what I’ll factor into my personal calculations: Collecting Social Security at 62. First step is to make sure I can make ends meet at that age, given that factor. Then I can figure out how far forward I can bring my personal independence date, based upon other income sources/asset draw-downs. Lastly, I can get a firm idea of how much downsizing and frugality can really affect my situation. I’m thinking they can affect it quite a lot. At the very least, they can keep me from ever needing to fill out a job application at Wal-Mart.