There’s a temptation to boil personal finance down to calculators and spreadsheets.
Can I retire?
Should I do Roth conversions?
When should I take Social Security?
Many say “find the right retirement calculator” or “put together a spreadsheet” and use that to make the decision.
I’ve thought about this issue often during my career as a financial planner and personal finance content creator. In 2024 I discussed this issue during my CampFI presentation.
In the past week, two pieces of content have put this issue back on my radar.
First is Pete Adeney’s article The Shockingly Simple Math Behind Social Security. Mr. Adeney is more commonly known online as “Mr. Money Mustache” or “MMM.” In this article, MMM argues that the question of “when to claim Social Security?” is resolved by a net present value calculation.
Second is Rory Sutherland’s Doorman Fallacy.
I believe we can properly assess MMM’s argument by unpacking the Doorman Fallacy.
The Doorman Fallacy
Here’s my rough version of the Doorman Fallacy:
Picture a 5 star luxury hotel with a doorman. It actually has six doormen. Three Monday to Friday doormen, each working an eight hour shift and each collecting salary and benefits. The hotel also has three weekend doormen who occasionally also substitute for the weekday doormen. These three doormen collect an hourly wage.
Consultants can put their annual costs and the cost of installing an automatic door into a spreadsheet.
The spreadsheet tells us that in less than 8 months, the hotel breaks even from laying off the doormen and installing an automatic door. The automatic door needs to be replaced every 7 years. Thus, guided by the consultants and their spreadsheet, the hotel lays off the doormen and installs the automatic door.
In a couple of months, the hotel finds their average TripAdvisor rating fell from 4.8 stars to 4.4 stars. They notice that they have to lower room rates by 15 percent most nights to sell out the hotel when previously they had only a few nights that were not sold out. They also notice that now they occasionally get guest complaints about suspicious people hanging out in the lobby.
My very rough retelling illustrates that the Doorman Fallacy is a classic case of seeing the data but failing to recognize the pattern. Yes, spreadsheets can help us see the pattern.
Nevertheless, it is often the case that spreadsheets focus us on the data and obscure the pattern. The consultants’ spreadsheet focuses on one piece of data: the immediate cost saving from laying off the doormen and replacing it with an automatic door.
But doormen in the case of a 5 star hotel are much more than what the spreadsheet can easily capture–their salary and benefits. It turns out that for a 5 star hotel, the doorman is part of a pattern that is much more dynamic than what a spreadsheet can tell you.
Social Security and Spreadsheets
It’s tempting to boil Social Security down to a spreadsheet. Do a net present value calculation and make your claiming decision.
MMM’s recent article advises us to do that. He argues:
Because when it comes to deciding on how Social Security fits into your retirement strategy, it really boils down to only one number:
The Net Present Value of your future lifetime stream of Social Security payments.
Generally speaking, we compute net present value on a spreadsheet.
As much as I appreciate MMM (see below), I strongly disagree with the conclusion of his recent article. Why?
MMM’s take misses Social Security’s role in the pattern of investing and drawdown in retirement. Let’s dig into the pattern.
Volatility
First and foremost is volatility. Social Security, generally speaking, is the least volatile financial asset retirees have. Social Security is adjusted for inflation. Delays in claiming Social Security increase annual collected benefits under an established formula.
Compare and contrast Social Security with the other financial assets retirees rely on. For most, these are stocks, bonds, and cash. Stocks, bonds, and cash are good to have. But they are more volatile than Social Security, in my opinion.
You say cash isn’t volatile. I say its value can be eroded away by potentially unpredictable inflation. Bonds are subject to volatility due to movements in interest rates, and we know stocks have all sorts of volatility.
Picture a 70 year old retiree who has achieved what some call their “FI number.” Do you want him or her to have more or less volatility in their lives?
When we’re working in our 30s and 40s and have years if not decades until retirement, volatility is our friend. Volatility tends to, over long periods, fuel portfolio growth. Further, those in their 30s and 40s have years to make up for portfolio declines.
In our 70s and 80s we’ve experienced much of the portfolio growth we need for financial success. Further, we generally can’t go back to lucrative work at this point, so we struggle to make up for losses. In retirement, volatility is mostly our enemy.
I believe (generally speaking) most financially successful retirees should look to reduce volatility in their 70s and 80s. What does that look like when it comes to Social Security claiming strategies?
Delay, delay, delay!
From this perspective, financially successful retirees should live off volatile assets entirely in their 60s and collect Social Security starting only at age 70. This has the effect of reducing reliance on the stocks, bonds, and cash (the volatile assets) in one’s 70s and 80s and increasing the amount of nonvolatile income, Social Security, in one’s 70s and 80s.
While it is theoretically possible to use backwards looking statistics to illustrate volatility on a spreadsheet, doing so creates complexity and potential confusion while only looking backwards. Why focus on backwards looking statistics when the relevant numbers are future unknown numbers? Thus, I don’t believe that spreadsheets are all that helpful in recognizing this part of the retirement drawdown pattern.
Those focused on Social Security net present value calculations while ignoring how Social Security claiming strategies interact with the rest of a retiree’s financial portfolio focus on a subset of data instead of recognizing the relevant pattern.
Claiming at age 62 to invest: Some in the FI community claim Social Security benefits at age 62 to invest them. The idea is to “do better” in the stock market. I disfavor this approach. Why? It increases volatility by increasing volatile portfolio assets while decreasing the monthly amount of Social Security collected in one’s 70s and 80s.
Tax Planning
Another important consideration in Social Security claiming decisions is tax planning. Claiming Social Security early tends to limit or foreclose some outstanding mid-to-late 60s tax planning opportunities, including Tailored Taxable Roth Conversions and the Hidden Roth IRA. I discussed both of these opportunities in detail during my 2025 Bogleheads Conference presentation.
Delaying claiming Social Security can also reduce the amount of Social Security income subject to income tax. The rules subject 0 to 85 percent of one’s Social Security to income tax based largely on one’s other income. If you have less other income in your 70s and 80s (since you spent down more of your portfolio assets in your 60s) you are at least somewhat more likely to have less of your Social Security income subject to income tax. Note that this potential benefit is usually nonexistent for very affluent retirees.
Tax planning rarely boils down to just spreadsheets. It’s about recognizing the pattern of where taxes on retirees are likely heading in the future and how tax rules on retirees relate to comprehensive drawdown strategies. Cody Garrett, CFP(R) and I discuss this in great detail in our recent book Tax Planning To and Through Early Retirement.
Social Security Probability Analysis
Another factor to consider is “what claiming strategy is most likely to produce the highest total present value benefits collected from Social Security?”
The best free resource in this regard I’m aware of is Mike Piper’s opensocialsecurity.com.
Note that this resource simply answers one relevant question. As we’ve already seen, there are other relevant factors. The Open Social Security calculator in no way measures tax planning benefits of delaying. It also does not measure the volatility benefits to the investor of having more of one’s overall portfolio in increased future Social Security payments in their 70s or 80s.
Other Factors
Volatility, tax planning, and probability analysis. All three factors are relevant and are part of the pattern that informs our Social Security claiming decision. But there are other factors that are important. How long do you expect to live? Are you married? Are you the higher earning spouse or the lower earning spouse?
None of this is to say that Social Security claiming decisions are to be agonized over. I believe the pattern often emerges with informed consideration of the relevant factors. Spreadsheets and calculators can be helpful but are certainly not the be-all-and-end-all in this regard.
Social Security claiming decisions do not boil down to a single spreadsheet calculation.
Social Security’s Future: But Sean, won’t Social Security benefits be reduced in the future? Allow me to respond with a question: Will future politicians cease to act in their own best interests? A pay cut for retirees is hardly in the politicians’ own best interests, considering that in 2024, 58 percent of the electorate was aged 50 or older. The most likely explanation of Social Security benefits over the next few decades is that retirees will collect 100 cents on the dollar or very close to it.
Spreadsheets Do Have an Important Role in Personal Finance
Spreadsheets play a role in personal finance. I ought to know. I’ve now spent hours of YouTube videos going through spreadsheets demonstrating how retirees using traditional retirement accounts are taxed when taking feared required minimum distributions (“RMDs”).
It turns out that there’s nothing to fear when it comes to RMDs. The spreadsheets uncover the truth that too much personal finance commentary omits.
Long before my YouTube videos, the one and only Mr. Money Mustache used a spreadsheet to recognize a pattern. The Shockingly Simple Math Behind Early Retirement is a classic article. He used a spreadsheet to roughly translate a savings rate into “Working Years Until Retirement.”
MMM’s spreadsheet wasn’t used for precision. Rather, it was used to illustrate a pattern. Retirement is very possible if one reduces expenses to increase investments. The spreadsheet put data together–in this case, combining annual expenses and savings rate–to produce the pattern. MMM’s spreadsheet illustrates retirement is sooner than most think if you can reduce annual expenses and invest the savings.
The above said, let’s not get carried away when it comes to spreadsheets and online calculators. Gary Gulman helpfully observes that $20 to most people is not the same as $20 is to Bill Gates. A spreadsheet says $20 equals $20.
Trying to boil down personal finance decisions to what a calculator or spreadsheet says reflects a problem in decision making: what is most appropriately done based on multiple factors and inputs is boiled down to a “high school maths” problem.
Conclusion
Social Security claiming decisions cannot be made in a vacuum. There is no single silver bullet.
Social Security claiming decisions have implications for investment allocation and tax planning. Patterns can be understood only after considering all the important relevant factors.
Thus, a one-off net present value calculation is not sufficient to make a Social Security claiming decision. Using a spreadsheet to determine a Social Security claiming decision is equivalent to a spreadsheet claiming it is “optimal” to lay off doormen and install a cheaper automatic door at a 5 star hotel.
Yes, spreadsheets can play a role in retirement drawdown and financial planning. Far more important, however, is recognizing patterns that account for all relevant factors including investment volatility, tax planning, and the unique characteristics of each retiree.
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This post is for entertainment and educational purposes only. It does not constitute accounting, financial, legal, investment, or tax advice. Please consult with your advisor(s) regarding your personal accounting, financial, legal, and tax matters. Please also refer to the Disclaimer & Warning section found here.