Halvening

BTC is a currency based on a concept. It is also property like land, stocks and gold are property. It can be sold for dollars or purchased for dollars (or any other currency) on an open market. It has associated a futures market so it can be shorted. It exists in banks and people can lend and borrow against it and get paid interest. It is highly volatile. It is not a tulip. It is not worthless.

Gold has value and it holds its value because of its scarcity. Scarcity means you have to expend a lot of energy and capex to mine it, so there is intrinsic value, the cost of mining. It also hedges inflation since governments can’t debase it like dollars or bonds. It stands apart. Land is somewhat like that except land is under government control. Land has an advantage in that they aren’t making anymore of it so it too has a natural scarcity and therefore a natural means to store wealth.

It presently costs about $7500 in raw input to mine a BTC. The cost is a function of a miner’s efficiency and equipment and cost of electricity. So a single BTC is worth $7500 as a base cost, not nothing. It can go to nothing same as land can go to nothing, but it can also remain as worth something. BTC has a scheduled decline it what you get paid to mine one. This sets up a scheduled tension in supply and demand. In the beginning there weren’t many coins mined so it was fairly trivial to mine one. You could do it using a Raspberry Pi. Likewise the relative ease of mining made the value of a coin low so you could buy a cup of coffee for 10 BTC. As coins were mined the difficulty of mining rose since there are a total of 21M coins that will ever exist, so as coins get mined the cost to make more coins goes up. The cost however is not linear. It’s a power function. Every so often (about every 4 years) the amount a miner gets paid to mine a coin is cut in half. 1 goes to 1/2 goes to 1/4 etc so the cost of mining and therefore the base cost of a coin goes up. This occurrence is called the halvening. So theoretically in a binary BTC universe at the if it suddenly costs twice as much to mine a coin, the price on Tue may be $7500 and on Wed may be $15,000, because of the excess cost of production. It’s not a 2 x correlation but it’s a definite upward pressure on value. Value is set by trading in a market and just like gold or oil if the price gets cheap miners turn off their mining rigs, supply dwindles and demand over takes forcing price to rise.

You might say yea yea but who needs a BTC? I need gas to live my life but not BTC! Today there is severe financial manipulation and distortion in the markets. Interest rates are at a 5000 year low, a market peak (see what I did there?). This level of sustained government forced low interest coordinated around the world has never happened in recorded time. It defines an economic inflection point. Inflection points are when the local second derivative of a growth curve changes sign from + to – or – to +, so inflection points have a precise mathematical definition. If the inflection goes from + to – it means the failure of the growth curve is 100% assured unless another inflection occurs. The US stock market represents such a growth curve. The Japanese stock market also represents a growth curve. The Japanese market reached an inflection point in 1990 where growth went from + to – and despite the Japanese central bank’s wildest machinations to flip the inflection from +/- to -/+ they have failed. This is how important an inflection point is to an economy. Failure does not necessarily happen all at once. The Titanic took a long damn time to go down, a long time for people to get picked off one by one instead of a mass instant extermination.

Japanese debt is running 250% of GDP. Normally central banks reduce rates to the point such that relative deflation is replaced by inflation.

Inflation monetizes the government’s debt. You pay your debt in cheaper and cheaper dollars. Deflation does the opposite. You pay your debt in dearer and dearer dollars. Central banks manage this dearer and dearer conundrum by printing dollars. By increasing the money supply the value of each buck is debased. Why would the FED want 2% inflation and what does that mean to you? The government is 100 trillion shy in funding it’s liabilities so it would love 5% inflation or 10% inflation to inflate away it’s debt. Then it can pay you your SS check in dollars that are worth a dime. The problem of course is a loaf of bread worth $1 in today’s terms is worth $10 in “dime dollar” terms. The FED by it’s very policy of a 2% inflation rate is assuring your 1M nest egg will only be worth 500K in 50 years but the real cost of living will not be reduced.

So what’s this got to do with BTC? BTC’s value is based on the cost of mining, the same as gold. As such it’s price is not amenable to inflation. You can’t print BTC and there are 21M that will ever exist. Every time there is a halvening the base price of BTC has an upward bias based on it’s scarcity and cost of production, same as gold. Gold has been the metal because of its scarcity and cost of mining that has topped the scale in what is called “hardness”. Hardness means as fiat currencies fluctuate in value according to government manipulation (money printing) gold is set by scarcity and the cost of getting it out of the ground. If a $1 falls in half in an attempt to monetize the debt a bit of gold rises to 2$ based on it’s scarcity the fact it doesn’t rust and universality of acceptance as a store of value. After the next halvening in May 2020, BTC will attain a similar hardness to gold when viewed in terms of the intrinsic cost of energy used to produce it. In 2024 it’s hardness will surpass gold and the pressure on it’s price will further accelerate. If central bank’s game is to monetize debt owning something resistant to debasing is like getting paid a coupon on a bond. That will be the value of BTC and why it won’t go to zero. It won’t be amenable to inflation or government debasement. It can be stored on an encrypted thumb drive where as a kilo gold bar weighs 2.2 lbs and a 400 oz gold bar weighs 27 lbs. Try boarding a plane with a kilo or 400 oz gold bar. Try getting out of the airport without getting robbed. Try living in a country where the central bank is monetizing the debt without getting robbed. D o you think Venezuelans might have an opinion? Discuss among yourselves.

Living In A Game

I’ve been thinking about automation. Automation is disruptive. It improves efficiency at the cost of jobs. People wave their hands at this like somehow 3M idle truck drivers are going to solve their unemployment easily. This is what happened to this country. Billionaires and politicians shipped our jobs to Mexico and China, and the idle workforce got addicted to opioids. China returning the favor genetically modified opium poppies that can be grown year round and started sending tons of the 64 various analogues of fentanyl back in baggies. The fentanyl analogues have wildly different potency and a small therapeutic window between effect and death. RIP Tom Petty and Prince.

So what’s a mother to do? How do you create an economy for millions who are displaced and uneducated or under-educated? There are games now that allow the creation of economies within the game. You can “buy” actual virtual property using real money. Using your money you can build a house, furnish a house, and value add to your virtual life using your bank roll.

Imagine a virtual world where the game is retraining or initial training. The training pays you to learn, and the pay can be used to either create your virtual reality, enter into trading scenarios and competitions and group competitions. Currency would be digital like BTC and could be spent for real wold goods like food housing insurance etc or on virtual world goods and activities. You would have to engage to make any money. No sitting around in a stupor. The game would be stimulating enough to preclude the need for addiction. As expertise grew more avenues would open similar to different levels in a game. You could create online families as well engaged in common enterprise.

The game would allow a fair rule of law and justice in the administration of the rules, putting the lawyers out of business, as well as politicians. Since the currency is digital the money flow is completely track-able virtually eliminating fraud and illegal activity. If you’re a crook, your BTC would quit working and you can move to the woods with the ticks.

Jobs in the real world would feed back into the virtual economy. If you run a robot factory or a farm, or build housing, your work is essential and needs to be compensated. A population engaged in learning and entrepreneurial but legal enterprise and virtual reality would be a world wide economic powerhouse.

The concept is far from complete, barely a framework, but it would engage people in worthwhile work and virtually guarantee everyone a job. It eliminates the phony education system which hoovers up the futures of so many kids with pretend no knowledge education designed to give teachers a pensions. If your a fraud teacher no BTC for you.

The society is elastic and can be expanded as needed almost effortlessly.

The Dalio All Weather

Ray Dalio runs a highly successful multi billion dollar hedge fund, and is one smart cookie. In the investing community we are confronted with many portfolio choices. The Bogglehead approach is to use a concentrated stock portfolio to attempt to realize gains. I’ve written extensively about the danger in a concentrated stock portfolio, especially an inefficient concentrated portfolio like the BH3. The BH3 is an 80/20 stock bond portfolio with some global lipstick. If you characterize it any other way your kidding yourself.

I recently wrote an article about Harry Browne’s permanent portfolio and my efficient frontier mashup designed to further improve longevity and safety. Dalio created an All Weather portfolio which has some considerable homology to my Harry Browne mashup. Homology is a word that describes branching of entities from a common ancestor. I found it quite intriguing that my portfolio (sans BTC) is so similar to Dalio’s portfolio

My portfolio:

VTI 37% EDV 15% BIL 43% GLD 5%

Dalio’s

VTI 30% TLT 40% IEF 15% DBC 7.5% GLD 7.5%

Neither portfolio is concentrated in stocks. Mine has a cash position as the short term fixed component (which can be warehoused in interest bearing accounts), while Dalio uses short and long duration bond positions and Dalio has more exposure to commodities. My portfolio is on the efficient frontier with a 7% expected return and a 5% expected risk, Dalio has a 7.5% expected return and a 7.3% risk.

If you adjust the Dalio portfolio to sit on the EF the portfolio becomes:

VTI 35% TLT 18% IRF 42% and GLD 5% with an expected return of 7.6% and a risk of 6.3% very close to my 7%/5% portfolio.

If you Monte Carlo the efficient frontier adjusted Dalio portfolio you get:

This is a 30 year portfolio @ 4% withdrawal normal SORR. 9998/10,000 success rate.

This is 4% WR on a 50 year draw down. 97% success is very strong over 50 years at a 4% WR.

The reason I started looking at this is because a new attending contacted me in the PoF Facebook mentoring group about investing and I wanted to have alternatives with better risk profiles compared to what everybody else is doing. I have a hard time recommending something like an 80/20 mutual fund portfolio because of the problems with price discovery. One caveat is if bond yields go negative all bets are off. In that case I would probably stock up on gold and commodities DBA DBC and more GLD and dividend stocks. I can’t believe we are at a place where we even have to consider such a thing. The problem with this kind of portfolio is discipline. You have to be committed to staying the course. Because of the low volatility you won’t see monster upside years or monster losses. I would rebalance as needed.

This is truly an all season portfolio.

Aftermath

In the beginning was LTCM, long term capital management. The financial system almost came down in 1998 because of the over leverage of LTCM. The bad paper was absorbed by a consortium of 12 banks. 10 years later 2008 the financial system worldwide almost came apart. The bad debt was absorbed by the FED. Soon we could see strike 3 and only 1 balance sheet remains uncorrupted the IMF. It’s a game of hot potato and it’s what worries me.

James Rickards has written a new book called Aftermath, the 4th in his series on international financial macroeconomics highlighting how he thinks about surviving the next financial crisis. He kicked off the book tour with the following podcast. This guy is smart. He was the general counsel for LTCM and has been at the epicenter ever since.

A second video explains Dr Michael Burry’s equity bubble position regarding passive investing. I have mentioned my concern regarding this but I didn’t know Burry had this position. The guy is kind of annoying but in the video does a good job explaining the problem though he’s hawking his products so you have to look beyond the soap he is selling. I’m tilted small cap value in DFA funds.

Notice how he talks about a 45 year DCA time horizon to lower risk. This is not FIRE. In RE you are not DCA you are spending down.

Here is one debunking the real estate craze and the “it can never go down” notion. Macro Economic trends often last a Long time, but not forever.

Is “Living Fully” Just a Social Media Moment?

I read this Guardian Article today. It struck an eerie correspondence in me regarding the FIRE movement. I knew some food bloggers and their lives revolved around getting the foodie shot. If your purpose for eating is photography, is there a disconnect. Are you enjoying the food or the photographing, displaying, and commenting on the food for your following?

In the FI world I see the same. Is it about living in freedom or is it about chronicling some process you cooked up so you could publish? In the foodie community not much is lost if the beautiful steak is tough as an old boot. In the FI world much more is on the line. Success is about right sizing and diversifying risk, because failure when you are old is catastrophic. Is life about turning your work into a vacation? Is publishing on your “vacation life” merely advertising for your book or God forbid your movie? FinCon is listed as a media event. What does a media event do except tune up product?

I came across this MMM article today. He bottom lines:

In this situation, the following three sentences represent the entire universe of probability for you:

  • If you retire with $800,000 in investments, you willprobably make it through your whole life without running out of money (a 5% withdrawal rate)
  • If you start with a $1 million nest egg (a 4% withdrawal rate), you will very likely never run out of money
  • If you start with a $1.33 million chunk (a 3% withdrawal rate), it is overwhelmingly certainthat you’ll have a growing surplus for life.

So I dutifully Monte Carlo’d a 3% WR on a 60 year horizon using a super safe BH3 portfolio.

Runs out of money 11% of the time with normal SORR. The first failure is 12 years in. Not what I call overwhelmingly safe. Let’s add 3 years of initial bad SORR:

60% failure rate and the first failure is only 10 years in. That means if you retire at 30 there is a 10/10,000 chance you’ll be SOL by age 40, a 2663/10,000 chance you’ll be broke at 50, a 4631/10,000 chance you’ll be broke at 60, yep super safe NOT

I read an article on Millennial Revolution debunking FIRE as a cult. On 3 out of 4 by Wanderer’s own criteria FIRE is a cult. But is he talking his book (literally there is an add for their book at the end of the prose). I disagree with his last point and find all 4 points cult like

Here is what he defines as a cult:

WARNING SIGN #1: AN IDEOLOGY AT ODDS WITH NORMAL SOCIETY He calls FIRE cult like on this count.

WARNING SIGN #2: AN AUTHORITARIAN LEADER He calls MMM as the leader. I call the Bogelheads social media as the leader. Either way there is a narrative that needs be followed to be on the inside.

WARNING SIGN #3: INDOCTRINATION/BRAINWASHING 4 x 25 anyone? He claims no brainwashing yet in the MMM article I easily refute the safety of the argument. He points out they have a workshop and a book. Because you hold church services for the cult does not mean you are not a cult, it just gives you a means to fleece the flock.

WARNING SIGN #4: EXPLOITATION

He says no exploitation. Fincon just finished. A meeting devoted to honing the social media tools of exploitation. I guess GOOGLE and FACEBOOK aren’t about exploitation either. Read the article about “Living Fully” again. Is FI about being actually independent or about being an Instagram equivalent?. If your 60 year projection fails 60% of the time you ain’t holding your mouth right.

Real Vision

I’ve discovered a source of information that is about 10 layers under the boggleheads. The conclusions they talk about are conclusions I’ve come up with independently. In FIRE land there is a concept of tribe. People look at FIRE as their tribe. MMM is a tribal leader, as is WCI and JL Collins and all the rest. I’m at best on the perimeter of that. FIRE is not my tribe, but neither do I consider FIRE my foe. I’m an American and I wish my fellows well, success, and happiness.

I’ve spent some time trying to understand economic behavioralism. I’ve always been an efficient markets kind of guy, but the arbs and the robots have morphed the markets into something which has a market perspective and a meta-market perspective. The morphing agent is big data and the effect big data has on the human brain. You will do what your brain tells you to do and a huge portion of what you do is irrational and sub-cortical. If the data comes fast enough reaction becomes totally automatic based on fear responses or possibly pleasure responses.

You see this in video games. Massive data flows with complete manipulation of visceral responses with virtually no thought involved except which arsenal do you choose. The decision is not whether to kill “someone” but how to do it most effectively, and then let the emotional reactions have their way, actually their meta-way since no one really gets killed or do they? The way to shaping behavior is through practice.

FIRE is about shaping behavior and its about practice and practices. It’s also about meta-practice since much of FIRE is irrational and about the biochemistry it accesses. There are many systems based on this, multi-level marketing comes to mind as does Dave Ramsey as does High School and College and even Medical School. Clearly working 100 hours a week for a decade has its visceral consequence beyond the acquisition of a certain skill set.

The following video looks at some of how society has been structured in our country, not all that different from the promise of med school. When we buy a stock we become owners from our point of view. When we take a job we become stake holders in a corporate society. From the corporate point of view we are merely resources. From the political point of view we are the same merely resources. In corporate land we are the resources that propel profits, and from the political POV we are the resources that propel political power and tyranny. All of that has a meta- component.

To access the video you have to sign up for a free 2 week trial so be aware. The information on the site is extensive something like 1500 videos on all kinds of topics. I went ahead and joined @ 180/yr because this is my tribe. This is the level of analysis and challenge in which I choose to operate, even if it doesn’t affect my portfolio. I don’t operate a hedge fund but I want to know something of that level of operator since my portfolio is dependent on the market. I also don’t operate my portfolio on leverage but it turns out I am the leverage since it’s my capital that is at risk so in some respect I am levered. It makes me more committed to understand when to buy and when to sell and when to hold in a dynamic and ever more complex market environment. The mantra is buy low sell high. You don’t have to buy everything or sell everything however. You can buy some and sell some and take a profit to buy some more when it’s low and sell some more when its high, or not. For that I need a level of thought deeper than buy cheap index funds and take a nap.

The video is not an investing blueprint, but a commentary on history from a long time insider. A commentary with a much different narrative than what we get as retail marketeers.

https://www.youtube.com/watch?v=sJQYBWUqdIE

Nod to Diversity

So far my diversity play is working as I expected. Today the S&P is down .85%, and my diversifiers are all up, GLD ^ 1.5%, Cash (BIL) ^ .01% (but cash is in an interest bearing account.), EDV ^ 1.1%, and BTC ^ 8%.

GLD EDV and BIL represent stability. BTC replaces the volatility I lost from selling stocks. The % I own of each asset adds up to a portfolio located on the efficient frontier, and with a Sharpes ratio of >1 (about 1.5:1). My overall portfolio risk remains about 10% (9.5%). Since each diversifier is only a “small percent” of my equities exposure, I’m still largely concentrated in equities. If the bull continues I’ll be riding the bull. If the crash comes I expect the diversifiers to act as a parachute. If the crash is severe and lengthy the money in the non stock pots should sustain me going forward.

Inverted Yield Curve and Indexing

I study the markets. I’m no great “student” but I do what I can. I’ve written about the problem of indexing. John Bogel may yet blow us up. Index funds and ETF’s now make up way more than 50% of the market. There are many “Active” investor funds that are closet indexers. The fund may own a big position in indexes (passive) and some single issues (active) and then charge 1.5% on the fees. The point of the fund is the 1.5% fees. The passive part is a Chevy, the active part is the Fuzzy Dice. This means in the main many active funds are passive funds with fuzzy dice and high fees which is why they under perform. Passive indexers like boggleheads like to sneer with the old nannie nannie na na, I’m smarter than you are without understanding why they are smarter. The problem with all this passive index investing is price discovery. An index hides the price. If I own a crappy company that happens to be in the S&P 500 a percent of my price goes up and down based on whether the S&P goes up and down. So my crappy company gets hidden in the weeds. Crappy companies represent excess risk, so by owning and funding the S&P 500 the index risk rises despite the % of crappy companies it owns. You think you are diversifying away risk, but part of that “diversity” is actually masked by inefficient price discovery. The index gets bought month in and month out automatically by indexers despite a rising (or falling) % of crappy companies. This was the case with the FANGS from a few years ago. The FAANG (6 stocks 5 +Microsoft) was 13% of the S&P 500’s return, and 40 stocks were 35% of the S&P’s meteoric return. That means 460 stocks were crappier stocks. Not a knock on them just a knock on the “safety” of the index. If the FAANG rolls over, the index rolls over, so the “diversity” is an illusion. Only 6 stocks control your fate, yet month in and month out you invest in the illusion and sneer at the dopes.

If the market is 70% passive and the price discovery is opaque you are crusin’ for a brusin’ because you can’t tell what’s going on, or at least you don’t try to discover that. The number of stocks positive neutral and negative in an index can be and is tracked, and you can bet those active guys track it and if they see the risk rising they lighten their load. Not the bogglehead however. He just sneers and blindly keeps buying risk oblivious to the real risk because he can’t measure it. Let me give an example.

A cat 5 hurricane is bearing down on my house. It’s 200 miles away. Its track is slated to take it within 47 nautical miles from my house. As of now I’m ground zero, the spot where the hurricane will come closest to the FL coast. My risk is higher than anyone else’s. Yet I sit here today, it’s a little overcast, a nice breeze, the temp is a balmy 84. By tonight the winds will pick up around midnight. By 2 am Wed the storm will be passing by my house headed on up the coast.

Look at the contrast of knowledge by my physical reckoning it’s a nice overcast FL day. By my electronically price discovered reckoning today is not a good day to close on a property (buy some risk). It’s a better day to board up and stay in cash and hunker down. In my case a little bobble in the path can make the difference between 60 mile per hour winds and 150 mph winds. So even though you’re a sneering indexer the opacity of the market can come up and bite you in the patootie when you least expect it. The pro’s know when to risk off you do not until it’s too late. Then you sell low and Buffet eats your lunch.

The yield curve is the precursor of a cyclical down turn. Because of FED policy the yields are low so the curve is flat and like my storm a little bobble causes the signal to flash. Yield curves often invert when shorts over power longs aka shorts are on the rise. In this market the shorts have been constant (more or less), but the longs have been leaving the trade. Equilibrium is based on the difference so an increasing short vs a stable long is one way to flash the signal. The other is a decreasing long vs a stable short. So the later seems to be flashing the signal. The signal none the less represents the market fleeing to quality but where is quality if not in bonds?

The world is rolling over everybody is in hock up to their eyeballs. Corporate debt is BBB and high, very high. Government debt is through the roof and inflation is low despite zero rates for 7 years, money printing and low unemployment. Pensions are underfunded and baby boomers are retiring NOW. Under water pensions therefore must buy more risk. Millennials went and bought gender studies degrees and beer belly’s on high interest non forgivable loans so all their money is slaved to greedy universities delighted to pick their pockets. With inflation comes debt relief. You “grow your way out of it” It’s the governments secret weapon and they could care less if gas prices go to 10 bux a gallon. Millennials would like that too, pay off their loans with cheaper dollars. Pensions funds would like that too pay off those damn boomers in cheaper dollars. Deflation however does the opposite. Deflation makes the dollar more dear and debt more expensive. You have to pay off your debt with more expensive dollars than you had yesterday, and of course those dollars have to come from somewhere either a job, or somewhere. So I think that’s where the longs are going, out of risk, all risk. Expensive stock risk, expensive bond risk, expensive debt risk, expensive unemployment risk, and into money. If dollars are going to be more dear the conclusion is clear own dollars. Everybody and their brother has been gorging on risk, seeking return while sneering at the consequence and putting on blinders to hide the probabilities. Just keep buying those low cost index funds and sneering your ass off. Why hell you read it on the internet. Money Mustache and Taylor Larimore laid out the road to perdition using St John’s good name. Freaky baby freaky.

I know, I know, this time it’s different. Now sing me the narrative “invest in low cost index funds and never ever sell…”

READ THIS

PS Today I read an article on Bloomberg by Michael Burry, who successfully shorted the CDO fiasco in 2008. His analysis on index funds is similar to mine in terms of price discovery and market distortion.

SS Mashup

People blow off SS as a resource in retirement like it’s some “gravy”. It’s a short sided perspective. If you FIRE the affect of SS is muted since your wage history is muted and your ability to claim is distant. If you retire in a normal time frame as a high wage earner it’s economic impact on your retirement income is massive.

When you FIRE you throw away some human capital. You also throw away a huge chunk of SS. PoF discusses the diminishing marginal rate of return in his bend point article, but the overall return across 40 years of retirement is massive. It’s not gravy, it’s the main course. SS to a post age 70 retirement portfolio can mean virtual immunity to SORR for example because of how it reduces WR. I built a spreadsheet using my own numbers and my wife’s numbers to explore various scenarios with an eye toward optimization in retirement.

The spreadsheet comes with assumptions like inflation and it has a built in 25% haircut in 2032, which is consistent with how the law is written. You can mess around with claiming strategy like if you claim at 62 v 70 or if your wife claims at 62 and you claim at 70 and the sheet will project expected SS income out to age 100. You can add provision in case a spouse dies and see what a survivor benefit does to the scenario, or a post haircut survivor benefit scenario. If you have a TIRA you can track the effect of RMD on your total income, and you can calculate your tax burden and then the surviving spouses tax burden along the way. You can vary the year a spouse dies and see the effect of early death or late death. Understanding SS is an important bit of data in procuring a sustainable life.

This is a picture of the sheet. It plots my life and my wife’s life based on age. She’s 7 years younger. It takes into account the 2032 25% haircut (blue line), 2% inflation. the 15% tax break. Income need is how much you budget per year inflation adjusted. It adds RMD data from a 500K 6% TIRA portfolio into the mix so you have a total yearly income number and a total taxable income number. It subtracts income from need to come up with a shortfall which is the amount you have to extract from the portfolio ie WR. It does not account for income from the portfolio like dividends which can have tax consequence and throw you into a higher bracket.

As you can see if I live to 99 my SS and RMD at an age 70 payout, that will pay me and my wife 3.3M during the course of 29 years. My shortfall is 1.22M which is what I would need from savings to pay for our life. My total needed in retirement for 29 years would be 4.55M. With a wife and a long life, and optimized pre-retirement earnings period SS and a small 500K TIRA, can provide about 70% of retirement need. I would never call that gravy. It’s the beef!

Let’s say I kick off at age 83. I created a separate column that tracks inflation adjusted survivor benefits so you can track the benefit pre and post the 25% haircut

I can pick off any year of death and know how much SS will pay my wife thereafter.

My wife claims 50% of my SS since that’s the larger of the two possibilities. We can either claim separately or she can claim 50% of my income. Upon my death then she would claim the inflation adjusted and haircut adjusted survivor benefit of my FRA benefit.

Here is an example of my death at age 83

Notice the blue block reflects the change from joint income to survivor. Notice how much less SS pays out once I die, 3,3 v 2.7. Notice how the need did not change. Notice the extra WR required from the portfolio. Notice also the S S + RMD taxable income (SS Taxable). Recall once a spouse dies one deduction is lost and the tax bracket expands so the needed income expands even more and must be considered.

So there ya go, a quantitative way to think about gravy. If you understand this, this can be the difference in portfolio failure for the 4% WR, and 100% success. Plan wisely