Is The Nessy Legend Real? — Or, $40 Trillion Doubts FIRE: Thoughts On Navigating Potential Chaos
If you have been awake the last week, and are a US citizen, then you have probably heard the news that our national debt just reached $40 trillion.
I was curious about this. How did It double in size the last 10 years?
Here’s the deal. In my opinion, there is a lot of misinformation out there about “entitlements” driving up our debt.
Wrong, I say.
Social Security and Medicare are funded by payroll taxes.
Think of it as HOA dues that residents pay to ensure their neighborhood and housing stays up to standards.
These two very popular and necessary social goods are therefore not contributing to the national debt (at least in a material way).
The national debt is contributing to the national debt.
Think about it this way.
Let’s say you had a credit card and ended up maxing it out.
You also need more money to maintain your lifestyle.
And let’s suppose a company offered you another credit card.
You take it, and you use that card to pay off the interest and minimum payment of the first maxed-out credit card.
That’s essentially what is going on.
It’s not just running a deficit that is causing the exponential growth in the debt. The government has to borrow more money just to pay off the interest due on the earlier debt.
A deficit doesn’t help, But it is interest payments due on debt creating the bulk of the issue.
but again, that’s not “really” a Social Security and Medicare problem. In fact, Social Security and Medicare are required to buy government bonds with their funds. They are helping prop up the debt payments.
they are self-funded programs. As long as more people are on the payrolls than are pulling from the programs, they should last in perpetuity.
Increase Immigration and jobs, the Issue is largely Solved.
Therefore, I suggest you don’t buy into the propaganda being used to try to reduce these programs, or, God forbid, to make them “means tested.”
Means testing is one of the largest culprits of “us and them” thinking in this country, in my opinion,
but what do I know?)
No, the deficit is created by all other national spending, with defense spending being a huge culprit (i.e., think “never-ending wars,” etc.).
But the Biggest Debt problem is the snowball of past Debt Run Ups, that were generally created in the 1980s.
Also 2020, but no One wants to talk about that for some reason. Weird, right?
(Before that, it was World War II spending, but the debt increased nearly 300% in the 1980s, which seems to have created the snowball rolling downhill effect)
What has started to happen as a result?
Well, inflation for one thing.
The government must inflate the economy to ensure the debt load is “reduced” nominally.
What they seem to be trying to do is increase it just enough so that it relieves pressure, but not so much that it ends up creating a massive outcry from the populace or leads to stagflation.
The other thing that is happening is the negative correlation between stocks and bonds has basically disappeared. They move in tandem now. This happened during the 1970s, too.
Sure, bonds will go up and down in value at a slower rate, so there is still some diversification benefit from holding both, but yeah, it’s a new world compared to the last 40 years or so.
What do you do if you are FIRE or soon to be?
I am not giving financial advice here. I’m just raising the questions.
But I can tell you that I plan to keep on trucking towards a Highway to Yeah.
It’s cash flow. Plain and simple.
Equity growth is great. But if you ain’t got the cash to afford your lifestyle, what are you going to do when portfolios drop 50%, like many did in the 2008 Great Recession?
This got me thinking about my own spending since FIRE.
Here’s what I know.
If you can keep your spending to a 3% withdrawal rate, you will likely survive all ups and downs in the marketplace, as long as you are invested (e.g., in a 60/40 stock/bond-type, buy-and-hold, rebalance-regularly type of portfolio).
If you leave it in cash, you will be in trouble. Inflation will erode your purchasing power very quickly.
And, it’s relatively safe, even if we have another 50% drop in equity markets like 2008. Heck, most of that 3% will be covered in cash dividends alone.
I looked back at last year’s results.
Yes, 3% would have been easy to hit. And my funds and stocks put off 6%+ in cash flow.
Valuations were up, too, which is great, but I don’t really care about that as much as I do making sure that I never spend more than the cash flow from my investments.
2020 was a transition year, but if I start with 2021 to 2025, here were my annual withdrawal rates:
2021: 3.05%
2022: 3.59%
2023: 3.41%
2024: 3.08%
2025: 4.02%
The year 2021 benefited from being in “lockdown” during COVID. Fewer chances to spend through my normal channels (going out to eat, drink, and be merry, with travel, etc.).
In 2024, I set a goal to stay at 3%, and did so, pretty much.
In 2025, I began to rent a luxury apartment. And while my investments are covering the cost of this, I am still “withdrawing” (i.e., spending) from my overall portfolio.
I am curious to see what the impact of inflation will be in 2026, but right now I think I am on track to come in around 4% again, even though I set the target at 5%.
However, I would rather hunker down than spend that extra. I predict a storm ahead.
But don’t take my opinion for anything more than that. It’s just my opinion.
Bottom line, I decided to spend more because I felt like I had come through the worst potential “sequence of returns risk” period for my post-FIRE lifestyle.
And the beauty of renting versus owning my “winter home” is I can drop it immediately if something really bad goes afoul in the economy in the next few years.
Then I will be back to around 3%.
It’s easy if you can control your spending.
That said, I think you are also fine to follow Paul Merriman’s method, which I decided to test this year.
He sets his budget at 5% of whatever his portfolio was worth on December 31st of the previous year. That is what he spends.
If it is a good year, they take lavish vacations. If it is not, they stay close to home and do staycations.
Easy.
Worried about the national debt?
Yes, it’s a problem, and we will likely see a major disruption because of it. At the very least, we will continue to see elevated interest rates and higher-than-2% inflation.
But again, what do I know?
All I know is this.
Spending is the most important variable to monitor and control post-FIRE.
And that cash flow is Queen.
(The group Queen; they are the most popular legacy musical artist on streaming platforms … even surpassing The Beatles. This is partly because of concentration of streaming the hits for Queen, versus The Beatles breadth of top streaming songs. Math is weird that way.)
Note: All “facts” were pulled from Google Gemini searches, so take with a grain of salt.