Bear markets and bank runs aren’t good for most people. But let’s try to look at the upside if the Fed destroys the middle class, shall we? Thinking in extremes provides clarity to help make better decisions.

To set the stage, we know at least these three things:

• The Fed cares more about its legacy than supporting the middle class. All the Fed Governors are rich, so they will survive just fine as the economy goes down the tubes. To them, the economy is just made out of numbers, not people.

• We’ve already heard the warnings about economic devastation if the terminal Fed Funds rate goes beyond 5% and stays there despite slowing inflation. Yet, the Fed seems determined to continue hiking until more things break.

• One of the easiest ways to be a savior is to first be the destroyer. People tend to appreciate what you’ve done for them lately the most.

I don’t know if you’ve heard, but the 2023 Social Security COLA (Cost Of Living Adjustment) is a whopping 8.7%! This increase is both huge and head-scratching.

The 2023 Social Security COLA is huge because inflation peaked in June 2022 at 8.9%. The latest January 2023 CPI came in at 6.4%. Therefore, traditional retirees will be earning at least a real 2.3% more from Social Security in 2023.

It’s great to be a traditional retiree, as opposed to an early retiree, because traditional retirees get to earn a higher risk-free wage than the majority of American workers!

Why The Large Social Security COLA Increase Is Strange

The large 2023 Social Security COLA increase is also perplexing given our nation’s pension fund is underfunded by about 22%. If politicians wanted to make Social Security whole, an easy way to help would be to pay a much lower COLA for 2023.

I know there’s a lagging formula that calculates Social Security COLA each year. However, I suspect nobody would have batted an eye had the Social Security Administration said the 2023 COLA would be 6.4% instead of 8.7%. 6.4% would match the January 2023 CPI.

Heck, the SSA could have even come out and said the 2023 COLA was 5% and the majority of recipients and hopeful recipients would probably have been pleased. The argument for a 5% COLA would be that inflation is coming down and the headline CPI could average 5% in 2023.

After all, many of us are thrilled to buy risk-free Treasury bonds yielding 5%. Therefore, I’m sure most Social Security recipients would be equally thrilled to earn 5% more as well.

An Increased Social Security COLA Is Inconsistent With The Data

A final reason why the 2023 Social Security COLA increase seems odd is that the government announced in late October 2022 that the November 2022 – April 2023 I Bond interest rate would be 6.89%.

In response, I published a post on November 2, 2022, called, “The Most Bullish Economic Indicator I Know – A Lower I Bond Rate” which lead me to buy more of the S&P 500.

I’m sure there is a valid explanation for why the government lowered the I Bond rate from 9.62% to 6.89%, yet raised the Social Security COLA to 8.9% for 2023 from 5.9% in 2022. But I don’t see it!

If the government is looking at the same inflation data, there should at least be consistency in the direction of the percent adjustments based on the respective formulas. Alas, it’s as if the government departments are not talking to each other or looking at different data.

Social Security Is The Ultimate Safe Pension

When I was younger, I used to look down on Social Security. I didn’t think Social Security would be there for my generation (Gen X). Therefore, I aggressively saved and invested.

Instead of relying on the government to fund my retirement, I relied on myself. I even declared the new three-legged retirement stool called, You, You, and You.

The idea is to count on only your hard work, your retirement savings, and your side hustles for and during retirement. If Social Security is there for us when we’re old, then great. If not, that’s OK too because we never counted on it in the first place.

Now that I’m in my mid-forties, I have a more positive view on Social Security. First of all, my 70+-year-old parents are receiving Social Security. For this, I’m thankful as it helps alleviate my financial worry for them.

But most of all, I’ve witnessed for the past 20+ years how politicians are unwilling to pass legislation to raise the Social Security retirement age or cut benefits to make the system whole. Altering Social Security is political suicide.

To now see the 2023 Social Security COLA increase to 8.9% when inflation is declining is the final proof I need that we’ll all get our full Social Security benefits! There’s no need to combat inflation in retirement thanks to the stubborn government!

Politicians want nothing more than to stay in power. Hence, they will do everything they can to ensure all working Americans get as much money in retirement as possible.

Stress Relief For Workers Everywhere

The biggest takeaway from the 2023 Social Security COLA increase is that all working Americans don’t have to work as hard or save and invest as much anymore. This means less stress and a better life.

Not once have I ever included my potential Social Security benefits when calculating my retirement cash flow. Instead, I’ve only used what I’ve earned, saved, and invested in my retirement calculator variables.

Here’s a basic retirement calculation example excluding Social Security.

• Desired annual pre-tax spending amount in retirement: $100,000
• Estimated withdrawal rate or rate of return: 4%
• Capital needed: $2,500,000

Now that I have more conviction Social Security will be there for all of us in retirement, here is a new retirement calculation example.

• Desired annual pre-tax spending amount in retirement: $100,000
• Estimated Social Security benefits in retirement: $30,000
• Gross income amount needed excluding Social Security: $70,000 ($100,000 – $30,000)
• Estimated withdrawal rate or rate of return: 4%
• Capital needed: $1,750,000

Thanks to Social Security, this couple needs $750,000 LESS in capital to fund their retirement. If the couple saves $50,000 a year on average, including returns, the couple can reach that level of funding up to 15 fewer years!

Of course, if they retire before being eligible to collect Social Security, they’ll need to come up with alternative income or taxable passive income as a bridge.

Given time is way more valuable than money, Social Security must be defended at all costs. Raise the COLA faster than inflation every year if need be. The government can kick the can down the road after we’re dead.

The Average And Maximum Social Security Benefits After COLA

According to the latest SSA factsheet, the average Social Security benefit after the 8.7% COLA is $1,827 in 2023. That’s $21,924 a year in Social Security benefits.

If you’ve been earning the maximum income to pay the FICA tax limit for 35 years, you’ll be able to earn the maximum Social Security benefit.

The maximum benefit for a worker who claims Social Security at full retirement age (FRA) in 2023 is $3,627 a month, up from $3,345 in 2022. FRA is 66 years and 4 months for people born in 1956 and 66 and 6 months for those born in 1957; people born from Sept. 2, 1956, through July 1, 1957, will reach it in 2023.

$3,627 a month equals a healthy $43,524 a year in Social Security benefits. The vast majority of individuals can live off this amount.

Given I’ve been working since 1999, I plan to generate at least 10 more years of active income at the FICA tax income limit to earn the maximum Social Security benefit when I reach traditional retirement age.

Higher Social Security benefits is another positive of being a fake retiree. Find something you enjoy doing after your career is over that also pays you money. If you do, you’ll feel an incredible sense of winning.

The value of a maximum Social Security benefit of $43,524 a year is as follows:

• $1,450,800 at a 3% withdrawal rate until death
• $1,088,100 at a 4% withdrawal rate until death
• $870,480 at a 5% withdrawal rate until death

When we die, the value of our Social Security benefits is reduced to zero, unless it generates survivor benefits. The calculation is similar to how we calculate the value of a company pension. Although with a company pension, the risk is higher the monies won’t be paid out in full.

Thanks to COLA, we should expect Social Security benefits to continue increasing every year until we all die. In traditional retirement, the vast majority of Financial Samurai readers should be millionaires as well.

FICA Tax Rate Revisited

FICA stands for Federal Insurance Contributions Act. It consists of a 6.2% Social Security tax and a 1.45% Medicare tax that automatically gets deducted from your paycheck.

The Social Security tax rate is 12.4% – 6.2% is withheld from the employer and 6.2% is withheld from the employee. The Medicare tax rate is 2.9% – 1.45% withheld from the employer and 1.45% withheld from the employee.

Therefore, for regular employees, you will pay 7.65% of your income up to the maximum limit of $160,200 for 2023.

If you are self-employed, you must pay the full 15.3%, but you can take a deduction for half this amount. Paying the full 15.3% FICA tax is one of the reasons why many small business owners elect to form S-Corps.

Stay on top of the latest tax brackets each year so you can optimize your time and money.

Social Security COLA Takes Care Of The Wealthiest Generation

Take a look at the below chart by the Federal Reserve that highlights the percentage of total net worth by generation. The Baby Boomers, those born between 1946 – 1964, are the wealthiest generation.

Millennials, those born between 1981 – 1996, barely have any wealth. Yet, the government has decided to give Boomers an 8.7% COLA increase. Gotta love it as a Boomer!

Taking From The Poor To Give To The Rich

Below is another wealth-by-generation chart from the Federal Reserve which is constructed slightly differently.

Sure, the Millennial cohort is obviously younger than the other two cohorts and should be less wealthy. But there are more Millennials than Boomers now. If the government really wanted to properly redistribute wealth, it would focus more on helping the poorer generations.

Giving an 8.7% COLA increase for 2023 to Boomers is like elite private universities giving full-ride scholarships to Barack Obama’s and Donald Trump’s kids. It would be better for universities to give scholarships to poorer students who are struggling to get out of the poverty cycle.

Given the government is run by the rich elites, taking from the poor to give to the richest generation shouldn’t be a surprise. It’s one of the reason why growing our population is so important.

OK, OK, I’m being a little dramatic in my socioeconomic analysis. So let me share one final chart that highlights how Millennials are just as wealthy as Boomers at the same ages.

Therefore, we shouldn’t have to worry too much about “poor Millennials.” In addition, the Millennials will be inheriting trillions from the Boomers. We just have to go after Gen Z!

Better To Not Rely On Social Security For Retirement

Despite feeling more convinced full Social Security payments will be there for all of us in traditional retirement, I still recommend caution. The worst thing that can happen is you don’t save anything for retirement and the government decides to cancel Social Security altogether.

Therefore, save and invest as if Social Security won’t be there for you. Focus on building and doing the following:

1. Tax-advantaged retirement accounts to be there for you past age 59.5
2. Taxable investment accounts to generate passive income immediately
3. Side hustles to generate extra income while young and supplemental income in retirement

Personally, I’m going to do my best to forget that I could receive maximum Social Security benefits in 21 years. It’s just hard since I write about personal finance every week!

Americans Are Overly Reliant On Social Security

Check out the percentages of the population aged 65 or older for whom Social Security benefits accounted for at least 50 percent and at least 90 percent of family income. The data is from the Census Bureau.

About a quarter of seniors 65 and older rely on Social Security benefits for 90 percent or more of their income. 55.2 percent of women and 47.5 percent of men rely on Social Security benefits for 50 percent or more of their income.

In contrast, I would like all Financial Samurai readers and listeners to plan to have Social Security accounts account for 10 to 20 percent of their retirement income or less.

The more financially self-reliant we can be, the more the government will be able to do to help those truly in need.

Traditional Retirement Looks Better And Better

In conclusion, I say traditional retirement is looking more attractive than it’s ever been thanks to added Social Security benefits. Early retirement is becoming obsolete due to more work flexibility and more ways to make extra income.

The key is to not settle for a job we don’t like. We must force ourselves to keep searching for work that provides meaning. If we don’t, we will look back with regret having wasted some of the healthiest years of our lives.

Questions And Recommendations

Readers, what do you think about the government’s decision to raise COLA by a record 8.7% for 2023? Are you excited that once you’re rich, you too, will also get a large COLA increase? Any traditional retirees collecting Social Security and feeling great as a result?

To better manage your finances, sign up for Empower, the best free financial app to track your net worth, cash flow, and projected retirement income. I’ve used Empower since 2012 to manage our complicated net worth and it has helped tremendously.

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As more people look to retire early (<60), more people are looking for shortcuts in order to reach early retirement quicker. Some hate their jobs so much they are willing to retire early and live in poverty!

Instead of retiring early to live in poverty or near poverty, wouldn’t it be better to find a different job to live a more comfortable life? I think so.

Post-pandemic, I’ve made the argument early retirement / FIRE is becoming obsolete. No longer do we need to grind so hard and sacrifice to get out ASAP. Instead, there are now a plethora of new ways to earn money. Further, if you are able to work from home, you’ve got ultimate flexibility!

My goal for this article is to help you think about early retirement in a more healthy and balanced way. FIRE FOMO is real. Instead of feeling an intense rush to try and retire as early as possible, consider the alternatives.

• Find a more enjoyable job with better hours that pays less.
• Start a side hustle or side business that brings in supplemental income.
• Encourage your spouse to work longer or harder so you can take things down a notch.
• Take a sabbatical to recharge and rethink what you want to do with your life.
• Go back to school to change careers and take a break

Be careful sacrificing so much only to retire early and live a restricted life.

Early retirement / FIRE is becoming obsolete and that’s a good thing! No longer do you have to grind as hard and save as much to quit your job ASAP. Today, you can find many better ways to earn a living, no matter your education level or current occupation.

As one of the pioneers of the modern-day FIRE movement, I’ve witnessed many changes since 2009. In the good old days, the goal was to simply generate enough passive income to cover your living expenses. You could then retire early because you were financially independent.

Achieving the traditional definition of FIRE was hard. Therefore, new terms popped up to help FIRE pursuers feel better and more motivated about their progress.

Barista FIRE was created as a solution for those who still needed supplemental income and health insurance to be financially independent. Instead of working at Starbucks, I was thinking of working at Coldstone Creamery in Honolulu to help supplement retirement life.

Coast FIRE emerged for those who were still working day jobs but wanted to feel good about the amount of retirement savings they already had. But Coast FIRE and Slow FI are an illusion. It’s similar to everyone getting a trophy just for being.

Post-pandemic, however, I’ve come to realize early retirement / FIRE is now becoming obsolete. We no longer have to invent new definitions of financial independence. We no longer have to retire early either!

Let me explain why.

I’ve finally discovered the best reason to retire early. A longer steady-state period of happiness. It has taken me 10 years of fake retirement to come up with this epiphany because I had to experience the process myself.

In the past, I’ve written that early retirement isn’t all sunshine and rainbows. I went through plenty of struggles trying to find meaning and purpose during my first two years post traditional work.

On my financial independence journey, I’ve also encountered plenty of miserable rich people. They’ve got F You Money out the wazoo. Yet, they’re like black clouds of bitterness because they’re always comparing themselves to those with more.

No matter how much money we have, ultimately, we want to feel happier. Therefore, it is with great pleasure that I can confidently tell you retiring early makes you happier. Let’s dig into why!

Since I left my day job in 2012, I’ve been constantly preparing for economic devastation. I had to because I no longer had a safety net. My plan was to take a leap of faith and succeed. It would have been too embarrassing to ask for my old job back if I had failed.

Besides, going through the 2008 financial crisis was not something I ever wanted to experience again. For those who were still in school during our previous economic meltdown, be thankful!

Psychologically, if you can prepare for doom, you will likely be happier and less stressed if the time comes. Then when the economy inevitably rebounds, you’ll feel blessed to be making easy money again.

If the worst never comes, you’ll also feel grateful. Sure, you’ll have to contend with not getting as rich as you could have due to having a more defensive portfolio. However, you’ll still feel like you’re winning.

If the Fed hikes the Fed Funds beyond 5% and keeps it there for six months or longer, we will likely go back into a recession. With the 10-year bond yield at ~3.4%, a 1.6% inversion, the bond market is telling the Fed it is already making a grave mistake.

If the Fed doesn’t relent by the end of 2023, let us look at the bright side of economic devastation!

In the good old days, several friends and I liked having beers after each softball game. We got to discussing what is the one ingredient necessary for achieving financial independence early.

Here were some of their responses:

• Saving aggressively
• Investing in stocks
• Investing in real estate
• Earning side income
• Taking bigger risks in our careers
• Leveraging the internet
• Working ungodly long hours
• Relocating to areas with huge job growth despite the higher cost of living
• Starting a business

All of these ingredients are important for helping all of us achieve financial independence.

However, the #1 ingredient that drove me to FIRE, which nobody mentioned, was FEAR.

More specifically, the fear of failure. The more you fear something bad happening, the more you take action to make sure it doesn’t come true. The more complacent you are, the less likely you will take action to change.

Let me share some examples to explain what I mean. Then perhaps you can share your own examples in the comments section below.