By Dr. Jim Dahle, WCI FounderMany people, including white coat investors, have a subconscious or even a conscious fear of running out of money in retirement. Most people will qualify for Social Security, so running out of money doesn't actually mean having nothing. It means having to live on Social Security. The Wall Street Journal ran a fantastic article about four individuals who were living on little more than Social Security. I found it really interesting how they got by. I also found it useful to read the lists of what they wish they had done financially.
The average Social Security check these days is about $1,900. Two of the four individuals had checks close to that. The other two received significantly less. Some people have car payments higher than these Social Security checks. Let's dig into the details a bit.
The Retired Chef
The first guy was a 70-year-old professional chef with a Social Security check of $1,400 a month. He had been working 12 hours a day for 6-7 days a week until age 63 when he went into the hospital with a heart issue and then never worked again. His financial plan prior to that event? To work until he died. Thus, no savings. He had been making $8,000 a month; that's almost $100,000 a year. And now he's living on less than $17,000. How does he do that?
He rents his sister's basement for $500. Social services pay for his heart meds. The rest of his money goes for food, gas, and insurance. He's proud to be debt-free, although it sounds like the way he got out of his $12,000 credit card debt and his $100,000 medical debt was because his creditors gave up on collecting from him. He never budgeted before retiring but now does it religiously.
He spends his days watching TV, and he is thinking about getting a new dog from the pound.
Lessons learned:
- You might not work forever, so you better save something for retirement.
- Learn to budget before you retire.
- Lots of people will help you fill financial gaps, including family, social services, and charities.
- When the funds are limited, they need to go to the “four walls”: shelter, utilities, food, and transportation.
- If you're not going to save for retirement, your TV is going to be your entertainment.
More information here:
Doctors Need to Budget, Too (with a Few Examples)
Real Life Examples of Physician Budgets – From the Frugal to the Extravagant
The Retired Social Worker and Disability Advocate
The second person is a 73-year-old woman with a Social Security check of $1,040 a month. She had polio as an infant and then had a career working for a nonprofit. She became disabled in her 40s, and she went on SSDI. She transitioned to retirement benefits at age 66. She bought a home in Tucson for herself and her 90-pound dog with the $60,000 her uncle left her, and she has no debt. She gets income-related discounts on property taxes, utilities, and wireless bills. Her utilities run $135 a month, and about 15% of her income goes toward her property taxes. Food is $200 plus a $157 benefit from her Medicare Advantage plan. She spends $300 a month on people to help her with food prep, wheelchair maintenance, and cleaning. However that gets reimbursed by a nonprofit focused on keeping people in their homes. She helps with a folk festival and hangs out with friends singing and eating.
Lessons learned:
- Buy disability insurance. Make sure you buy enough that you can live on the proceeds and continue to save for retirement.
- What you earn affects your ability to save and how large your Social Security will be.
- Taking advantage of services available from insurance products, government entities, and charities can really stretch a limited budget.
- Owning your home free and clear dramatically reduces housing costs in retirement. Buying a home or paying off a mortgage can be a fantastic use of an inheritance.
The Widow
The next person is a 77-year-old woman with a Social Security check of $1,800. Her husband was a trucker, but she never had a job that paid more than $25,000—mostly in retail or healthcare customer service. She was 70 when her husband died, and she felt thrown to the wolves. She sold their home (netting a trivial gain) and moved into low-income senior housing. She gave up her landline and her car and learned how to budget for the first time. She spends $584 on rent and has a storage unit for $343. She spends a couple of hundred bucks a month on food, and the rest goes toward insurance, basic cable, a cell phone, and laundry.
She spends her days at the senior center hanging out with friends, playing pinochle, and enjoying free coffee and $1 meals that are “better than what she'd make herself.” She gets around for $1 a ride via a subsidized senior housing transportation option.
The article says:
“[She] wishes she’d spent more time learning about money when she was younger. She didn’t know then how much boosting her earnings during her working years could have raised her Social Security benefits. She regrets not pushing herself to pursue higher education. She also wishes she had learned to pay her family’s bills so she didn’t have to get a crash course after her husband died in 2015.”
Lessons learned:
- You can't just assume your spouse will take care of you. They might not be there as long as you are.
- Education pays off.
- Learn about money as early in life as possible.
- Your (and/or your spouse's) earnings affect your Social Security benefit.
- Sacrifice when you are young or sacrifice when you are old, but you will sacrifice.
- Senior centers can be a great place for cheap entertainment, eats, and knowledge about other available services that might help you.
- Don't accumulate so much stuff that you have to pay to store it.
More information here:
What to Do If Your Doctor Spouse Dies Young
Preparing for Tragedy: Ensuring Your Partner Can Manage Without You
The Wanderer
The last person is a 63-year-old woman who loves to travel and has a Social Security payment of $1,970. She worked as a fundraiser for nonprofits, and she was planning to work until 65. But when she hit 62 and was eligible for a Social Security payment, she punched out. She sold all of her belongings (except, amazingly, a Tesla). She loves to travel, and she spent her money on travel instead of saving for retirement. YOLO! She began saving late in her career and managed to save up $151,000 in a retirement account and $22,000 in a brokerage account. She was married for 18 years but is presumably now divorced.
She spends her money on, no surprise, traveling, although her biggest expense is her $706 Tesla payment. She spent five months in Australia in 2023, totaling $10,000. Last winter, she did a 50-day cruise to South America, Antarctica, and the Galapagos. She boosts her income (and reduces her expenses) by housesitting. She also rents out the car on Turo when she isn't home, and she is planning to launch a travel agency for solo women travelers.
This example actually seems the least extreme. She is clearly a “die broke” type, but I don't have a problem with that. She made a conscious decision to take Social Security at 62. Had she waited until 70, she likely would have had a 50% higher payment, but she would have had to draw down her savings more. She saved something for retirement. While $173,000 might not seem like much to a white coat investor, it's probably more than the average person. The median retirement 401(k) balance for someone in their 50s is only about $53,000. Most importantly, she is still working—at least somewhat. That will help her retirement savings last much longer and provide a higher standard of living during these “go-go” years. I worry about what she is going to do for housing when she becomes too old/infirm/poor to be either on a cruise ship or housesitting. But she won't ever be any worse off than the widow above.
Lessons learned:
- Don't assume you will actually want to work a full career. Desires change.
- You only live once. Money may be limited, but so is time.
- You spend more in early retirement than later.
- Pay off your cars before going into retirement.
- You aren't what you drive. When your income is $25,000, there is no Tesla model that is affordable.
- You can travel pretty cheaply, especially if you're willing to be creative.
- You can often do some work in retirement, especially early retirement, and it makes all the numbers look better.
- Figure out a way to travel while working and you won't have to retire to travel.
More information here:
How to Add Adventure to Your Life
What’s the Value of Our Time, Anyway?
Takeaways
There are a few takeaways for white coat investors that can be had from this review of the financial lives of four real people.
#1 Nobody Actually Runs Out of Money
In our society, with almost everyone qualifying for Social Security and tons of great charities and government services, nobody actually ever runs out of money. There will always be something to spend and budget.
#2 People Are Incredibly Adaptive
People adapt to their circumstances far more readily than they think they will. I can't tell you how many young people look at a chronically ill elderly person and think, “I would never want to live that way.” It turns out that when you actually become that person, you simply adapt to your new circumstances. You still find joy in life, even with limited capabilities. The same applies to limited funds. You adapt and find the joy in life, whether that's a cruise to Antarctica, pinochle at the senior center, or your favorite college basketball team on TV.
#3 At the Low End, More Income Makes a Big Difference
When you make $15,000-$50,000 a month, there doesn't seem to be a big difference between $1,000, $2,000, or $3,000. When that $1,000-$3,000 is your monthly income, there's a huge difference in the lifestyle that can be provided by $1,000 vs. $3,000. With $3,000, you can go on cruises. With $1,000, your entertainment is TV and pinochle.
#4 Charities, Government Services, and a Progressive Tax Code Reduce Income Disparities Significantly
None of these folks are paying any income taxes, but they get a whole lot more in benefits from the government and nonprofits than a wealthier person—subsidized housing, subsidized food, subsidized healthcare, and subsidized transportation. It's a pretty good list. Somebody with $10,000 of retirement income probably doesn't have 5X as good a life as someone with $2,000 of income. It's probably only 2X as good.
#5 Get Rid of the Debt
Having a paid-off house, a paid-off car, and no debt payments really matters when the income is low.
#6 Bad Things Happen to People
Spouses die. Couples get divorced. You become disabled. Each of these has a huge effect on your income and your wealth. Save up a little more than you think you need. Insure against financial catastrophes as best you can.
#7 Partner Up
Each of these four people is single. I don't want to imply that it isn't OK to be single, but there's a reason that married folks, on average, are wealthier than single folks. A second income (or at least a potential second income) and someone who can watch out for you and lend a hand and who has a different set of skills provides a tremendous amount of financial security. There is also a certain economy of scale that occurs when two people are sharing a set of assets, such as a home.
#8 You Don't Need Millions to Have a Nice Life
I see white coat investors who think they need $5 million, $8 million, $10 million, or even more to have a secure, fulfilling retirement. That's probably not the case. You can probably work a little less, save a little less, and retire a little earlier with less money, and you'll still be OK.
What do you think? Do you worry about running out of money? How much is “enough?” Would it really be that bad to retire with little more than Social Security?
Great article. I’m an AARP TaxAide volunteer, and these first few weeks of tax season have been full of clients just like this. After a lifetime of living as a high income family, it’s incredibly humbling to interact with so many people living this reality every day. And for the most part, they are generally content with it.
I’m a rookie TaxAide volunteer and have had a similar experience so far. It’s been very humbling.
Mathematically, us white coat investors are all closer to broke than becoming billionaires.
Thanks, Jim, for this article. It’s great to read through some real cases of less-financially-secure individuals making it work. Helps to put our own financial efforts into context!
Thanks Jim for posting this article. It helps to put things into perspective. Great real life cases and comments on lessons learned.
Glad you enjoyed it.
Regarding social security, should we be paying ourselves as much as possible to get the biggest social security payout? How does that work? Instead of paying myself $300k from my S corp, should I pay myself a million just to get the social security benefits or does the increase in taxes make it not worth it? What is the sweet spot here for maximizing social security benefits?
There is a maximum amount of salary that is subject to social security tax and that determines your eventual social security benefit. In 2025 it is $176,100 and is subject to annual inflation adjustment. Eventually congress may increase the amount of salary that is taxable but I doubt they will increase the available benefit to high earners.
You certainly don’t need a salary higher than the SS wage limit to max out the benefit.
Social security benefits (roughly) are the result of a formula basically on the lifetime average inflation adjusted income you paid Social Security taxes on. If you google image search “social security bend points” you can get an idea of how the formula works. The graph you see will show two bend points, which are kind of like marginal tax rates. When your lifetime average income reaches a certain point, you start getting less benefit per dollar. At another point it becomes even less. If you consider the tax as an “investment” it has a strong return before the first bend point (i.e. lower lifetime average incomes) and a weaker return after. If you were to try to game the system you’d stop working the moment you hit the first bend point. That’s the “sweet spot” you asked for. You can know when you’re there by looking at the primary insurance amount on your social security statement and comparing it to the bend points for the current year on the social security website.
Takeaway #9: If you’re poor, don’t get a dog or any other pet.
Perhaps this gentleman can volunteer at a shelter and even foster a pet. The shelters typically pay for foster animals’ needs while with a foster parent. Win for the animal and win for the human.
The main point of the article is poor by USA standards is actually living very well. Get the pet they will both be fine. Oh that note most “poor” people are actually content, a problem “rich” people have a hard time solving always checking their balances with max stress. As Biggie Smalls said, “more money more problems!”
Very thought-provoking piece. This prompts reflection on how blessed presumably all of us are who are reading this, and provides even more food for thought while wrestling with whether to OMY (or even “TMY”).
“Had she waited until 70, she likely would have had a 50% higher payment, but she would have had to draw down her savings more”.
I always wanted to see a blog post about the math of taking the SS at 62 (reduced) and investing it in, say S&P500, vs. waiting until you’re 70. I know the breakeven point of 62 yrs vs 70 yrs is at about 79 yrs of age, but that’s not counting 8 years of investing of SS paychecks.
I saw a YouTube video that break even point is missing the point for many people. It’s insurance, insurance against being homeless and starving. It may be worth chancing getting less over a lifetime, if you do happen to live to 100, and you’ve already ran through all of your savings, that higher benefit is priceless. Just something to re-frame how most people look at the “problem”.
Totally agree.
Bingo. Getting the highest “average” value is not relevant unless you are so wealthy that you simply can’t run out of money or you have a near-guaranteed death date (e.g. terminal disease). You can think of delaying social security as buying a bigger, more delayed inflation adjusted annuity. As social security is basically the only inflation adjusted annuity left, as part of a larger portfolio it’s a pretty invaluable longevity hedge that you can’t get anywhere else.
*ahem*
https://www.whitecoatinvestor.com/when-to-take-social-security-a-pro-con/
https://www.whitecoatinvestor.com/social-security-basics/
https://www.whitecoatinvestor.com/dont-take-social-security-early/
*ahem*
Delaying SS is risk free. Investing is not. So you can’t really compare those two things apples to apples. But is it possible to come out ahead? Sure. Just like you can probably come out ahead borrowing tons of money your whole life to invest more. It works until it doesn’t.
“Delaying SS is risk-free. Investing is not.”
Can you elaborate, if possible?
I landed someone $1 today. On my 62nd birthday, they showed up to give me $1.25 and said they would provide me with $2 if I agreed to delay it for 8 years. What if I am not around?
1) Your money is returning to you; give me one reason to say no.
2) As of 2022, the average lifespan in the US is 77.5 years. For a man, it is 74.8 years. (CDC)
3) As of 2023, men earned 17% more than women. (US Census Bureau)
3) Do we know how long we are going to live? If yes, with what surety? Is this gamble “risk-free”?
Many beneficiaries will die between 62 and 70, and most will die within the next five years (after 70). Many of them will be sudden deaths precluding a window to make meaningful changes. The government knows this better than us, so such an offer exists.
Vi,
I agree with much of what you said, but I think you are confusing life expectancy at birth with life expectancy at 62. They are very different numbers. I believe that the life expectancy for a healthy 62 year old man is 83 (and for all 62 year old men it is 82), which is about 7-8 years longer than 74.8 years. I do not think it is correct that “most will die within the next five years after 70.” It appears that less than half of healthy men will die before 80.
Also, an important secondary point is that for a couple, the woman is likely (not guaranteed) to outlive the man, especially if she is younger which many are. The woman can outlive the man by 5-15 years, which extends the impact of receiving a higher benefit (since the survivor receives the higher benefit of the two people). For example, my mom just passed away in November and she outlived my dad by 10 years. He died at 84, she died at 92. She enjoyed his higher benefit for 10 years longer than he did. My M-I-L has outlived her husband by 4 years so far, and we will see how many more years she gets. She is getting his higher benefit. He died around 82 and she is currently 85. Anecdotes don’t prove anything but they do illustrate the point that is true in many millions of cases.
Unless you are unhealthy or unlucky or single or a very good investor, the gamble is on the side of those who wait to take SS.
Vi,
I forgot to mention in my previous comment that delaying SS from 62 until 70 also frees up more room in low tax brackets to do Roth conversions for up to 8 years, which could be significant for many of the readers of the WCI blog. That is one of the reasons I am delaying taking SS until 70. For a single person at the maximum SS benefit, that could free up around $34K/year in lower tax brackets to do Roth conversions for 8 years (around $270K of Roth conversions at lower tax brackets over 8 years). For a married couple earning SS at 1.5 X the max benefit it could mean up to $407K in conversions at lower tax brackets. For a married couple with both at the max benefit it could mean about $540K in conversions at lower tax brackets. Of course all of this depends on your personal financial situation and tax brackets. But it could be a significant benefit to waiting on SS if you can do Roth conversions partially at 0%, and the rest at 10% and 12%, rather than 22% or 24% or even 32%. Does that outweigh the extra you could earn by investing the SS taken at 62? Depends on what you actually earn in after-tax returns by investing the $$.
Another benefit of delaying for sure.
The return on delaying SS, assuming you have a normal life expectancy, is guaranteed. It’s not on the investment.
And if you’re not around, who cares? You clearly had enough. The longevity insurance is valuable if you live a long time and if you don’t, it doesn’t matter.
I’m not a doctor, but I LOVE the WCI!!! Very helpful for anyone.
(1) One perspective is since the SSA will “run out of money “ around 2033, the government will eventually enact means testing. That is, people with a lot of money will still get their SS payments, but with a 25% haircut. So the advice would be, if you don’t really need the money take SS “now”, and if you will need the money take SS at 70.
(2) It would be easier to know what to do if we knew at what age we were going to die.
(3) Luckily for most of us on this forum, SS won’t make that much of an impact on our financial well being (hopefully).
1) Surely there will be an adjustment for that, no, such that nobody is hurt for delaying.
2) Of course.
3) It’s a bigger piece than many think. I mean, I expect to get more than $50K a year between the two of us and lots and lots of docs retire with only $2-5 million, i.e. $80-200K a year of income. $50K is no small chunk of that.
(3) True. Not minimizing it (I’m very pleased we are receiving $63,000 as a couple).
While I agree that it is extremely unlikely that the federal government chooses to basically screw over the most important voting bloc out there by cutting benefits, I do think it’s important to consider such risks. For example it may be in the opposition parties interest to effectively filibuster away the ruling parties ability to maintain the benefits as a strategy for blaming it on them and winning the next election. This has recently been proven to be an effective strategy for winning elections.
What percentage of retiring physicians have more than 5 million?
I don’t know of that exact data, but it’s 10% of all physicians. It’s 15% of physicians 60-64 and 22% of physicians 70-74.
Most of the takeaways are things we watched our grandparents do if we were lucky enough
#4 is true, but the “poor take more from the government than the rich” is more nuanced. Things like the mortgage interest deduction, carried interest, EV tax credits mostly taken by the wealthy, and many more of the things talked about here stack up quickly even if fewer people are taking them overall.
A quote from this book: “the most recent data compiling spending on social insurance, means-tested programs, tax benefits, and financial aid for higher education show that the average household in the bottom 20 percent of the income distribution receives roughly $23,733 in government benefits a year, while the average household in the top 20 percent receives about $35,363.” https://www.google.com/books/edition/Poverty_by_America/n4t2EAAAQBAJ
The devil is in the details. You would have to count a tax credit for buying a Tesla as the equivalent of food stamps to come up with a figure like that. Seems a bit disingenuous. Without the credit, many wouldn’t buy that Tesla. If the government doesn’t want to subsidize something, it shouldn’t do so. But it can’t complain the subsidy is welfare.