Before the article, here\u2019s what\u2019s happening this week on our podcast, <\/em>Personal Finance for Long-Term Investors<\/em><\/strong>:<\/em><\/p>\n George R.R. Martin\u2019s epic fantasy saga,\u00a0<\/span>A Song of Ice and Fire<\/span><\/strong><\/em>,<\/strong><\/em>\u00a0started in 1996, with Martin publishing the first three books over five years<\/span>. The books built a cult following thanks to their gritty realism, deep characters, and (let\u2019s be honest) a willingness \u2013\u00a0or even a penchant \u2013<\/em><\/span> to kill off anyone at any time.<\/p>\n Then HBO came calling. In 2011, the Game of Thrones<\/strong><\/em> adaptation turned the books into a global sensation of a TV show, just as Martin published\u00a0<\/span>A Dance with Dragons<\/span><\/em>, the fifth book in<\/span> the saga.<\/p>\n Since then, though, fans have been (im)patiently waiting for the sixth book, The Winds of Winter<\/em>.<\/span> Martin has been working on it for over a decade with no release date in sight. The audience reaction to the delay has ranged from good-natured memes to full-blown despair, especially since the TV show timeline overtook the books\u2019 timeline and ended\u2026controversially. To make matters worse, there\u00a0is supposed to be a\u00a0seventh\u00a0book, A Dream of Spring<\/span><\/em>.<\/p>\n The first five books are hugely popular and highly regarded. <\/p>\n But until Martin, now 76, finishes the series, it will feel imperfect. <\/p>\n How, why, and when should we let \u201cperfect\u201d<\/strong> interfere with \u201cgood enough?\u201d <\/strong><\/p>\n Last April, I wrote a surprisingly popular article that suggested retirees could reframe their thinking about Social Security. Instead of a \u201cmeasly income stream,\u201d they could conceptualize it as a meaningful lump sum asset from which they take a monthly withdrawal. <\/p>\n Ex: it\u2019s not just \u201c$2500 per month.\u201d It\u2019s a $600,000 lump sum that\u2019s paying you 5% interest! <\/em><\/p>\n Last week, reader Bill<\/strong> wrote to me to push back on the entire premise of this article: <\/p>\n \u201cI don\u2019t think you should consider SS as an asset as its an extraneous\/unuseful calculation.\u00a0Instead, determine your portfolio asset allocation by what you need from your \u00a0portfolio and when it\u2019s needed. This uses the expected amounts of guaranteed income. Retirement Planning is complex enough that minmizing the variables involved is sometimes helpful and valuing SS as a lump sum is one variable that is not needed.\u201d \u00a0<\/em><\/p>\n<\/blockquote>\n Technically speaking, Bill is 100% right. <\/p>\n When I go \u201cbehind the curtain\u201d into a real financial plan, I do not<\/strong> treat Social Security as a lump sum. I treat it as what it is: an income stream. That income stream is part of someone\u2019s overall cash flow analysis, along with their annual spending, irregular big-ticket spending, proposed Roth conversions, and necessary portfolio withdrawals to balance the budget. <\/p>\n This \u201cCashflow Planning\u201d is a fundamental step in someone\u2019s retirement plan. To then treat Social Security as a \u201clump sum\u201d on someone\u2019s balance sheet would be double-counting. <\/p>\n Bill and I shared a few more emails and he wrote: <\/p>\n Some people learn\/understand differently\u2026e.g. they don\u2019t understand the simple math of [income minus expenses], but they get a warm and fuzzy feeling seeing a larger number [as a \u201clump sum\u201d].<\/em><\/p>\n<\/blockquote>\n I want to focus on this part of Bill\u2019s statement: \u201cSome people learn \/ understand differently\u201d<\/strong><\/p>\n YES! YES! YES! Bill hits the nail on the head with a 10-pound hammer. BAM! I love this line, and it\u2019s a fundamental truth that guides my writing, podcasting, and professional work. <\/p>\n Different people learn and understand differently. <\/strong><\/p>\n That is \u201ctheory of mind\u201d<\/strong> in a nutshell. <\/em>It\u2019s the ability to understand that other people have their own thoughts, feelings, beliefs, and perspectives that may differ from yours. Different people learn and understand differently than you.<\/p>\n My engineering brain knows where Bill is coming from. His thought process is: \u201cfocus on the math, the numbers, the objective facts, and then optimize.\u201d\u00a0<\/em>And again, when I go \u201cbehind the curtain\u201d to the world of pure financial planning math, that is precisely what we do. <\/p>\n But the vital truth is that many people don\u2019t think like that. They don\u2019t think like me. They might not think like you, either. Different people require different mental models to latch onto, helping them understand and make good choices. And those choices might not be\u00a0perfect<\/em>\u00a0to you or I.<\/p>\n But that\u2019s where we shouldn\u2019t\u00a0\u201cmake\u00a0perfect\u00a0<\/strong>the enemy of\u00a0good enough<\/strong>.\u201d<\/em><\/p>\n This \u201cSocial Security lump sum\u201d article originated when I was talking to a group of teachers<\/a>.\u00a0One of them was expecting ~$2500 per month from Social Security and another $4000 per month from her pension.\u00a0But she \u201conly\u201d had $100,000 saved in her retirement accounts (403b and Roth IRA).<\/p>\n Should a teacher in this scenario feel bad for only having $100,000? Should she be worried? Anxious? Her understanding of retirement planning made her think that she was drastically undersaved.<\/p>\n \n
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Social Security Lump Sum?!?! <\/h2>\n
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Theory of Mind<\/h2>\n
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