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YALE UNIVERSITY economist Robert Shiller, in his book Narrative Economics, argues that storytelling has more of an impact on economic events than we might imagine. It might seem like the financial world ought to be driven by facts and data, and yet stories often take on a life of their own.
For instance, financial narratives often play a key role in stock market bubbles and busts. More generally, financial myths and misperceptions are widespread, and navigating them can be a challenge. Examples? Below are five common myths.
1. “Investors should be careful when the market keeps hitting new all-time highs.” This seems like it ought to make sense. Anyone who lived through a mania like the dot-com bubble might conclude that bubbles inevitably burst, so it’s best to step aside when markets are hitting all-time highs.
But here’s the problem: Because the stock market trends upward over time, it’s not unusual for market indexes to hit new all-time highs. J.P. Morgan provides this perspective: In nearly 30% of cases when the market closes at an all-time high, that new high has represented a “floor” below which the market has never dropped more than 5%. In other words, while sometimes a bubble truly is a bubble, that’s not always the case—and it’s difficult to tell the difference.
2. “In my parents’ generation, people could live on the income from their portfolio. Things were better then.” Look at your investment statement, and my guess is that dividends aren’t the main attraction. Some stocks don’t pay dividends at all and, on average, the S&P 500 currently yields just 1.5%.
That stands in contrast to history. Between 1926 and 2023, dividends accounted for nearly 40% of the S&P 500’s total return. As a result, retirees used to talk about living off their portfolio’s income. Investors nostalgic for that era might be less enthused about today’s more meager dividends. But you shouldn’t be concerned.
It’s not that companies are less profitable today. To the contrary, public company profit margins have increased over time. But companies have changed how they allocate those profits. In the past, a much greater portion was paid out to shareholders in the form of dividends.
But today, companies allocate roughly equal amounts to dividends and to buying back company shares. Why the shift? Consider the change in how companies compensate their executives. Today, there’s a much greater emphasis on stock-based compensation, and that’s created more of an incentive for managers to see their company’s share price rise. Result: Companies today allocate more cash to buying back shares because buybacks have the effect of driving up share prices.
Should investors be upset by this change? In my view, no. In aggregate, buybacks now account for about 1.5 percentage points of the S&P 500’s return, with dividends providing another 1.5 percentage points. Taken together, that 3% isn’t far off the 4% that investors have historically received as dividends. In other words, dividends may be lower than in the past, but investors are no worse off because total returns—that is, price appreciation plus dividends—are no lower.
3. “There’s a penalty if I claim Social Security while I’m still working.” You may have even heard the formula, which sounds punitive: Social Security will deduct $1 from benefits for every $2 earned. While this is technically true, it overlooks some important details.
First, this penalty is imposed only when benefits are claimed before your full Social Security retirement age (FRA), which is between ages 66 and 67, depending on the year you were born. Second, this isn’t a true penalty. Those dollars aren’t lost forever.
Instead, after a worker reaches FRA, Social Security adds back the amounts that were earlier withheld. In addition, any year in which you work will add to your Social Security earnings record, and that could potentially increase your benefit. The bottom line: If you want to work part-time in retirement while receiving Social Security, you shouldn’t worry.
4. “It’s a mistake to claim Social Security before age 70.” Age 70 is when the largest benefit check is available, and for that reason it’s become a sort of personal finance commandment that everyone must wait. But this should be viewed more as a guideline than a rule.
Why? While you wait, you’re also taking a risk of another sort. For each year that you don’t claim benefits, your benefit needs to be that much larger down the road to make up for the missed years. And because of the time value of money, that breakeven point is pushed out even further.
For many people, it makes good sense to take this risk, since the breakeven point tends to be around age 78, and folks who make it to 70 can expect to live until their early- or mid-80s. But if you’re married, the math changes. That’s because it’s only worthwhile for both spouses to delay until age 70 if both spouses outlive that breakeven point. That’s why it can make good sense for one spouse to claim earlier than 70.
5. “The estate tax won’t be a problem for me.” Under current rules, only a tiny fraction of estates—just 0.2%—are large enough to owe any estate tax. That’s because, for a married couple, the federal estate tax applies only to estates with $27 million in assets. Even after the potential rules change in 2026, that figure will still be very high, at over $13 million for couples.
For that reason—and because there are other less complicated strategies available that can shrink an estate—many people dismiss the idea of formal estate tax planning. For some, that makes sense—but it depends. Twelve states and the District of Columbia impose their own estate taxes, and six states have inheritance taxes, meaning that they tax the recipient of a bequest.
Making this even more of a challenge, many jurisdictions tax estates with as little as $1 million. Simply owning a home in those states might push an individual above the threshold. And while state estate tax rates are lower than the 40% federal rate, they’re not immaterial—with top rates between 10% and 20% in many cases. For that reason, it’s worth researching the rules where you live.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam’s Daily Ideas email, follow him on X @AdamMGrossman and on Threads, and check out his earlier articles.
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I’ll be 75 soon and my only close relatives are my brother, who will soon be 78, and sister, who just turned 65. I never married, and both of my siblings are divorced. None of us had any children.
I started Social Security at my FRA of 66. I had originally planned to wait until 70 but realized that it didn’t really matter, it’s unlikely that I’ll outlive my money in any case. I got lucky, my investments have done well since I started Social Security, pushing my break-even point out further.
My brother is in mediocre health and is in assisted living. If I were to bequeath him a significant amount, it would likely affect his VA health benefits and possibly future Medicaid benefits. I’ll leave part of my Roth IRA to my sister and let her decide what to do if necessary.
My sister is also unlikely to outlive her money, she has a good state pension and significant other savings. I suggested that she not bequeath a significant amount to me, but she refused. She’s in remission from breast cancer a couple of years ago but otherwise is in good health. She recently decided to take Social Security at 65, it doesn’t really matter much for her either.
Estate tax really isn’t a concern for me since most of my estate will go to charities.
Reference the SS issue (collecting at 70): For a married couple, the math is somewhat complex, due to the widow(er)’s benefit. However, for a single person (or normally the older, higher earner spouse) in good health, it’s relatively straightforward. One simply has to look at SS benefits as an inflation protected lifetime annuity (which it is). If one compares the lump sum required to produce those annuity payments for collecting at any age between 62 (the first year one is eligible for SS retirement benefits) and age 70, there is an appoximate 4% over inflation annual return for every year of delaying until 70. One cannot achieve that guaranteed return with any other alternative investment.
For the often expressed reason that one “cannot afford to wait”, that really means that one cannot afford to retire.
I have heard over the years that many retirees wait until age 70 to get higher benefits. I took it at age 65 just because it’s between 62 to 70 + I use it to pay Part B. I have enough money and that means, the SS money is invested. Let’s do some numbers according to this (https://www.ssa.gov/pubs/EN-05-10147.pdf) + assume 8% annual performance + no inflation.
Taking SS at age 65 = $866 per month at 8% annually to age 95(30 years) = 1.22 million.
Taking SS at age 70 = $1240 per month at 8% annually to age 95(25 years) = 1.127 million.
What am I missing?
I’m with you. Started at 65 just so I wouldn’t have to deal with paying Medicare myself instead of just having it taken out of my SS. In addition, my family history indicates lasting longer than the break even point is questionable, and given the financial state of the country and the SS fund, taking what you can get while you can seems to make sense. Financially I could have waited, but why bother?
What are you missing? First, most folks use Social Security to pay for retirement, not to invest. Second, if you want an apples-to-apples investing comparison with Social Security, the alternative should be bonds, which won’t deliver 8% a year. Third, if you want a shot at earning 8% a year, you’ll need to buy stocks — but that 8% isn’t guaranteed, because stocks involve significant risk.
Hi Jonathan:
What is your take of Mike Piper’s informative ‘Open Social Security’ site (https://opensocialsecurity.com/) where he recommends that to maximize my benefits I draw SSI at 65 and 3 months, based on adjusting for the fact that a dollar received in the future is worth less than a dollar received today. His algorithm maximizes present value of money stream received. My FRA is 66 and 10 months.
I like opensocial, too, and based on the calculations I did with it I’m claiming in January 2025 at 65 and 2 months as well for 95% of maximum. The NPV for the 5% we’re giving up over our lifetimes is just $5,000.
Interesting this squares well with my own homebrewed spreadsheet analysis I did a few years ago. I tried various scenarios including both die early, one early one late, both late. The odd thing I found is that the total value of SSA payments we receive actually declines for a couple of years after I turn 65 before it goes back up again as I approach 70.
To me it’s a no brainer to claim at 65. I’ll feel better, sleep better, and spend better while we’re in our go go years. I can’t wait.
Thanks for this input. I am turning 65 this year, but still working. I am retiring later this year and plan on drawing SSI from next year. If I start drawing on SSI at 66, Opensocial says I lose 0.2% from the max present value calculated at 65 and 3 months.
Do you know what are Mike’s assumptions for life expectancy and discount rate used to calculate present value? After 20 years out I expect the present value levels off?
You might want to check out this page:
https://opensocialsecurity.com/about
Thanks. Very interesting.
I saw that Mike Piper uses a discount rate of 2.23% (yield on 20-year TIPS used as default), to calculate NPV. If I change it to 3% the recommendation was to start SSI withdrawals at 64 and 11 months, instead of 65 and 3 months. I am single. My breakeven point for waiting until 70 is 81.
I think Mike’s calculator is great. I don’t know why you get the result you do — it all depends on your inputs. The recommendation to me is to wait until almost 70.
Interesting. The calculator tells me to take SS at 67 and 8 months. I will lose money if I wait until I’m 70, about -2%. I’m still waiting until I’m 70.
Weird… no matter what I enter I get the same strategy. I tried ‘nonsmoker super preferred’ and ‘smoker standard’. They give different end values but every variation says wife starts at 62&1 month and I start at 70.
Thanks, Jonathan. I only need to enter my age and FRA amount. Mike’s calculator does the rest. I am not sure of his assumptions of my life span and also the discounted rate used for present value calculation.
You are correct. Most people need SS. I’m talking about the ones who have a nice amount and can take SS or wait. 8% is reasonable for these investors based on stocks+bonds. Stocks always have more risk than bonds but most investors still own them in retirement because they can’t afford to use only bonds.
Bonds also have a significant risk of low performance.
Since 2010: (https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=4I3FEKUVj4wqhGwZluUPvs) BND made just 2.3% SPY made 13.6%. Of course, past performance…..
Even if I use 6% annually and invest it, I get more.
Taking SS at age 65 = $866 per month at 6% annually to age 95(30 years) = $843.9K.
Taking SS at age 70 = $1240 per month at 6% annually to age 95(25 years) = $838.6K
Almost no one talks about investing SS.
Two more things to keep in mind. First, you’re comparing a nominal 6% return to an inflation-adjusted stream of income. Your calculation will only hold up if stocks deliver an after-inflation 6%. Second, my assumption is that you either hold no cash and no bonds or your health is poor and, if married, so is that of your spouse. Otherwise, why would you opt for a reduced benefit when the stream of income from Social Security is far superior to the stream of income from bonds and cash?
I have never worried about the “break even” point for Social Security. Nor do I care if I get back less than I paid in. What I care about, and why I waited until 70 to claim, is getting the largest possible base for future cost of living increases. My pension doesn’t have a COLA, and SS does. (I’m single, married couples have additional considerations.)
Different strokes. The “break even” was ALL I cared about. When I got to a year before full retirement at 67, the accountant and I sat down (via Zoom) and calculated that I’d have to live to 84 to break even. We both reached the same decision instantly. I filed the next day. Love those monthly deposits. Love ’em.
Why do you care about break even. If you don’t break even, it means you aren’t here doesn’t it? 84 seems too long.
And 84 doesn’t seem out of reach. I am running my financial plan on the assumption I’ll live to 100, although realistically I’d prefer to check out in the early 90s.
Unfortunately, I cannot make the same assumption about my longevity.
What assumptions did you make to arrive at a breakeven of 84?
My CPA did the calculations using a program he has used for some years now.
Interesting, and thought-provoking, as always!
Stories are powerful for investors, and #2 nails one that doesn’t need a tragic or nostalgic ending. The SP500’s poor dividend yield is another fine reason to consider tilting a portfolio using other indexes. Value stocks, quality ”dividend aristocrats”, and ex-US stocks have historically yielded more dividend income than SP500 and still do today. Our grandparents were pretty wise; let’s not so quickly toss their investing playbook.
I understand the appeal of dividend focused investing, but if you instead believe that a total market fund is all you need, I think #2 is a good reminder that lower dividends doesn’t mean a lower total return. As a result, I see no need to supplement with any dividend-focused stocks or funds, though I do appreciate ex-US for diversification outside of the US.
We’re playing different games with our investing, each right for our particular needs. There’s absolutely nothing wrong with keeping to a broad index fund, and plenty of positives.