Planning to rely on social security? Try living on it first!

By Slow Dad - June 15, 2017

Relying on social security to rescue your early retirement once you've burned through your savings? Try it first, a comfortable existence it is not!
I read a lot of personal finance content, possibly an unhealthy amount even, ranging from the mainstream media to the blogosphere.

My hope is that I’ll learn something new. Some new idea. A new approach. A new articulation of an old lesson that finally results in an “ah-ha” style penny dropping moment.

To learn something.

To learn anything... please!

The problem is this involves wading through a ridiculous amount of drivel. “Me too” posts that gradually dumb down key messages as they reverberate around the echo chamber of the blogosphere until all the risks, caveats and context are lost in favour or some pithy tweet or sound bite.


Until eventually we see self appointed experts sagely proclaiming idiotic statements to the masses like “The market always goes up!”.

Or "diversifying across geographies is unnecessary because many S&P500 companies trade globally".

Or owner occupied housing is always inherently the wrong choice.

Or that somebody who has worked in a low-income job for 10 years after finishing school can realistically expect to retire early and be financially ok.

Please! Next thing you know we'll have people in positions of authority proclaiming the world is flat, climate change is a good thing if you want to grow tomatoes in Copenhagen, and that Brexit is good for the UK economy. Oh bollocks, it wasn't all a bad dream!

One of the recurring themes I’ve observed lately is a large number of early retirement evangelists relying on a funding model (or backup plan) of reverting to the government pension to support them in their old age.

For some this approach is a backup should the markets blow up, their investment returns not achieve the very rosy returns forecast by some very optimistic commentators, or the “safe” withdrawal rates proved to be less sustainable than they envisaged.

For others the reliance on a social security safety net approach is the plan.

Reliance on a social security safety net approach should not be the plan.
Do you see social security as a safety net to catch you when you fall? Or are you using it like a hammock?

Be careful what you wish for

However it is worth considering for a moment what this existence would actually look like.

In the UK the state pension amounts to £122.30 per week.

On top of this a single person or couple can receive an additional £260.64 in rental assistance.
There are probably a bunch of other benefits available, however the government has implemented a “benefits cap” of £296.35 per week for singles.

That amounts to £15,410.20 per year.

The average UK wage is £472 per week, or £24,544.

Anybody who lives in a large city like London can attest that living on less than £500 a week doesn’t make for a comfortable existence.

Trying to live in a large city on only 63% of that average wage, which is what the benefits cap would provide, would be a meagre existence indeed.

Now London isn’t everyone’s idea of a dream living location for retirees, it certainly isn’t where I plan to end up. However the numbers aren’t materially different if living in a trailer park by the beach in Cornwall or in deepest darkest Essex.

According to the ONS the average household spends £129.30 per week on essentials such as food, housing, and utilities. Transport accounts for another £72.70.

Collectively that accounts for £202 out of the £296.35.

That leaves only £94 per week for everything else.

Holidays.

Christmas and birthday presents.

All forms of entertainment.

Furnishings.

Clothing.

The list goes on.

It is certainly doable. It isn't as bleak as sleeping in a cardboard box under a bridge. However it doesn’t sound all that comfortable, or much like fun to me.

You too can wake up with a view over Hyde Park in central London!
Imagine being only £90 away from financial oblivion each week. Car needs repairs? Emergency vet bill? Replacing the washing machine? Doomed!

Perhaps it is best to critically assess what we are told and what we read, particularly on the internet.

Perhaps it is best to seek out a range of objective voices rather than just those singing seductive siren songs of what we want to hear.

So what?

If something sounds too good to be true, then it probably is.

By all means pursue early retirement, but at least make sure you've actually given your numbers a road test before making the leap. If your pile of wealth is too small, and the stock market fairy fails to magically provide that 7% to 11% real return on your investment portfolio that the pundits talk about, then you're going potentially going to be living in struggle town.

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