American workers face challenges balancing their daily expenses with planning for retirement, all while considering the importance of Social Security benefits in their financial strategies.
However, Scott Galloway, author and New York University professor, wants his readers to think in a big, different way about work, retirement and economic security.
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Galloway, who earns $16 million annually, believes that Social Security benefits should not be available to people with that much wealth, including himself. He supports the idea of using means-testing to determine eligibility for the monthly payments.
Means-testing is a method used to determine whether a person qualifies for financial benefits or assistance based on their income and assets. It would evaluate one’s financial situation and try to ensure that Social Security monthly paychecks are allocated to those who need them the most.
Galloway points out that most recipients withdraw two to three times the amount they contribute through these taxes. He argues that those who are exceptionally wealthy should not necessarily receive the benefits simply because they have paid into the system.
As a tax that helps to fund Social Security benefits, he believes the money should be used to support those who genuinely need it.
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Galloway also believes exceptionally wealthy people are not taxed at a high enough rate that pays their fair share to fund the federal program.
He explains that he pays $9,000 in Social Security taxes each year, which is the same amount paid by someone with an annual income of $160,000.
As for retirement in general, Galloway offers an alternative way of thinking about it.
A retired couple is seen holding hands and walking on a beach. Scott Galloway explains a financial plan he believes will lead to economic security.
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Scott Galloway discusses Social Security, has huge words on retirement
Galloway explains that he understands Social Security’s trust funds — unless legislative action is taken — will run out of money in 2033, according to the Social Security Administration (SSA).Â
That would result in Social Security recipients receiving only about 80% of their expected monthly benefits. But Galloway does not believe there is any real threat to the program.
“Old people keep living longer, and they vote, so we’re more likely to get rid of schools, the space program, and half the Navy before we fail to fund Social Security,” he wrote in his book The Algebra of Wealth.
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Galloway discusses his vision of a big new way of thinking of retirement, saying that typical personal finance advice about it is outdated and does not fit with his philosophy of wealth.
“I want you to obtain economic security before you stop working,” Galloway wrote. “The sooner the better.”
Referring to The Algebra of Wealth, Galloway discussed his vision.
“You could apply the principles of this book and, with some luck and a lot of hard work, be living on a boat in the Caribbean by age 40, never earning another dollar,” he wrote.
Related: Scott Galloway sends strong message on Social Security controversy
Scott Galloway’s view of economic security, ‘burn rate’
Galloway explains his view of economic security and how it relates to stress people feel about their jobs and money.
“Once you’ve achieved economic security, you may decide to continue to focus on work and professional achievement. I have,” he wrote. “But the stress surrounding work declines dramatically when it becomes a surfboard instead of a life preserver. We perform better when we are confident.”
The author says generating passive income is the key to building wealth, and that the amount of money one needs for financial security varies per individual.Â
That money total comes down to a simple plan: Generate more passive income than the rate at which you burn money. Galloway calls this a person’s “burn rate.”
He explains the math in the following way:Â
Rough out your projected expenses for a year and add them up. Bump it 20% to cover taxes (30% if you expect to live in California, New York, or another high-tax state). That’s your annual burn rate.
Now multiply that burn rate by 25. That’s (roughly) your number — the asset base you need to generate passive income greater than your burn. Why 25? That assumes your assets produce income at a rate of 4% over inflation. Different financial planners will suggest slightly different numbers, but 4% is in the ballpark, and 25x makes the math easy.
This is just a rough sketch. Our tax estimate is simplistic. Your burn rate will rise if you have kids in the house and fall when they move on.Â
But any work of art starts with a rough sketch. If you need $80,000 a year to cover your bum rate, then $2 million is your number. If you hit that in invested assets, then you win — you’ve beaten capitalism.
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