Ask most Americans what the bedrock of the American retirement system is and you’ll probably hear that it’s Social Security. For over 80 years, the Social Security system in the US has helped provide American retirees with money in retirement. But far too many retirees have begun to depend on Social Security for a more and more significant portion of their retirement income. And in a few short years, they may no longer be able to depend on that income. Social Security was never intended to be a sole source of income for retirees, or even a major source of income. It was only intended to be supplemental income, to keep people from being completely destitute in their old age. But because of the way the system was structured, early recipients of Social Security income received far more Social Security income than they ever paid in Social Security taxes, making it seem as though the program could offer a significant source of income in retirement. The Social Security system’s numerous financial problems have required many fixes along the way. Social Security taxes have increased continuously over the past decades, while benefits have been decreased. But there’s a limit as to how low those benefits can be decreased before disgruntled retirees turn out at the polls to turn out benefit-cutting politicians. And so the system is slowly creaking toward a financial crisis out of which there may be no return. Social Security Situation Is Dire Over the years that the Social Security system has existed, it has periodically taken in more money in taxes than it pays out in benefits. Those excess funds are invested in interest-bearing non-marketable Treasury securities, with the money then being sent back to the Treasury Department to be spent on other things. The securities are held in a trust fund, and the interest made on those securities is added to the fund as well. Social Security’s total benefits paid has long exceeded what it takes in from payroll taxes. And now the total benefits paid exceeds both its tax income and its interest income combined. That means that the Social Security trust fund is being drawn down and will eventually disappear. Last year, the Social Security trustees expected the Social Security trust fund to be fully depleted by 2034. Thanks to reduced tax income as a result of the COVID lockdowns, that estimate has now been moved up to 2033. In other words, in 12 years the Social Security trust fund could be at zero. At that point Social Security will be unable to pay out 100% of its expected benefit payments. In fact, current estimates are that Social Security will only pay out about 76% of expected benefits by 2033. Are you ready to accept a nearly 25% hit to your Social Security retirement income? Even worse, these estimates seem to get worse every year. Just about every year the depletion date is moved forward and the estimated level of benefits decreases by a few percentage points. At the rate things are going, by 2025 we might expect Social Security to go bankrupt within five years, and for expected benefit payments to fall to below 70%. If you’re age 65 today, you can expect to live until about 2040. That means that you could face a good 10 years of a 25-30% or greater reduction in your expected Social Security income, at a time in your life when you will likely need every penny you can get your hands on. Are you prepared for that? Who Will Be Affected? If you’re over 75, you may get “lucky” and not feel the negative impact of a bankrupt Social Security system before you die. But if you’re nearing retirement or already retired, in the 55-65 age group, you’re likely going to feel the impact in a big way, particularly if you planned on depending on Social Security income for a large portion of your retirement income. Younger age cohorts are also in a tough spot, as the financial situation of Social Security will become worse over time unless either benefits are reduced or taxes are increased. Without changes to shore up the system, those under 45 may very well see Social Security payments wither away into a mere pittance, or perhaps disappear completely. How Can You Protect Yourself? Thankfully we have received plenty of warning of Social Security’s eventual demise. With Congress seemingly unwilling to fix the system, it seems all but certain today that retirees will see a forced reduction in their benefit payments. But you have at least a decade to help prepare you against that eventuality. That gives you plenty of time to assess your retirement plans, assess the state of your retirement savings, and adjust your assets accordingly to help safeguard your retirement income. One way you can do that is by investing in precious metals like gold and silver. Social Security income is all but guaranteed to decline over time, which isn’t exactly what you want to see when you’re no longer bringing in a salary and are depending on your retirement savings for income. In contrast, gold and silver offer the potential for asset growth in the future. Their long-term price growth has been on par with stock markets, while over the past 20 years they have exceeded the performance of stock markets. There are numerous options when it comes to investing in gold and silver. One of those is direct purchases of gold and silver coins or bars. Anyone can buy them, and you can choose to store them at home, in a safe deposit box, or with a precious metals depository. These precious metals coins can come in handy when you need income in retirement, as gold and silver markets are highly liquid. If you have retirement savings in tax-advantaged retirement accounts that you want to protect, such as in a 401(k), TSP, IRA, or similar account, you can invest in a precious metals IRA. A gold IRA or silver IRA allows you
Medicare Funding Shortfall Could Make Social Security Look Solvent
Two of the biggest expenditures the federal government makes each year are its largest welfare programs, Social Security and Medicare. The two programs cost the federal government $1.9 trillion in 2020, more than the amount of money taken in through income taxes. But both of those programs are in poor fiscal shape. The problems with Social Security are well known, and well publicized. The program is expected to last just over a decade before payroll taxes are projected to be insufficient to pay benefits, at which point seniors can expect to receive less than 80% of their expected benefits. But compared to Social Security, Medicare is in far worse shape. In fact, Medicare’s fiscal position is so precarious that it almost makes Social Security look solvent. Medicare’s Hospital Insurance trust fund is expected to become insolvent in 2026, only 5 years away. After that point, it only pays for 91% of benefits. And that payment will only get smaller each year thereafter. That could have a major impact on your retirement income as you age. Why Is Medicare So Important? Nearly 63 million people are enrolled in Medicare today, nearly as many as Social Security. But while not everyone receives a huge amount of money from Social Security, the potential is for Medicare recipients to receive a large amount of benefits due to the nature of healthcare costs. The way Medicare is structured, with penalties being assessed if you choose not to opt in to the system at age 65, you’re almost forced to join Medicare once you reach retirement age. There’s hardly a senior in the country today who isn’t part of Medicare. So if Medicare isn’t going to be able to pay for medical benefits, that could have a negative effect on your health and your pocketbook. Who Pays for Healthcare Without Medicare? The big question that everyone has is, who will pay for medical services if Medicare is unable to? Medicare has essentially become a major subsidy to the healthcare industry, with just about every hospital in the country dependent on Medicare revenue for its continued operation. So if Medicare payments fall, hospitals are going to find it more difficult to operate. For those seniors who still have health insurance plans, such as retired federal employees, their primary insurer may end up paying for their healthcare first, then Medicare. But if Medicare can’t make the payments, who makes up the shortfall? Could it be you, the patient? Even worse, if Medicare is the only health insurance you have and it can’t pay, will you be on the hook for what it won’t cover? There’s a real possibility that could happen. Or if hospitals don’t want to bill their patients more, they may decide to ratchet back the number of services they offer to their patients in order to minimize costs. Your options after 2026 may be to choose between paying more for healthcare or being forced to reduce the quality of your healthcare. Neither of those sound appealing. Are You Prepared for Medicare Insolvency? Like Social Security, the fiscal position of Medicare will only deteriorate in the future without a fix. As the US population ages, more Americans are going to be drawing on Medicare for their healthcare. And fewer workers are going to be paying payroll taxes to support those Medicare beneficiaries, meaning that the percentage of benefits Medicare will be able to pay will decline each year after 2026. Congress thus far doesn’t seem to care about the situation. In fact, Democrats in Congress are trying to expand Medicare to include even more benefits, but without raising additional revenue. If they’re successful, they could push Medicare into even worse financial shape. Medicare is essentially on the verge of a crisis that could determine the very existence of the program in the future. Will Congress get serious about Medicare’s fiscal woes and take steps to shore up the program? Or will it continue kicking the can down the road and allow the program to leave both seniors and healthcare providers in the lurch? And how are you planning for Medicare’s insolvency? With the very real possibility that a Medicare trust fund depletion could mean higher healthcare costs for you, that could mean that your healthcare expenditures will increase. If you thought you’ve saved enough for retirement, your estimates may now be too low. And that means you may have to adjust your retirement planning to account for Medicare’s bankruptcy. Medicare, Markets, and Your Retirement Unfortunately the outlook for the economy and for markets doesn’t look too good for the future. With shortages of labor, parts, and raw materials, companies throughout the country are faced with uncertainty. That means the prospects for future growth aren’t that great. Stock markets are already beginning to show some signs of wariness about the future, reflected in some pretty big drops over the past couple of weeks. We could very well be on the verge of a stock market correction, or even more ominously, a long-term period of subpar economic growth and stagnant stock market valuations. With high inflation, high unemployment, and an economy that is struggling to get back to normal, there’s an increasing likelihood that the 2020s could end up just like the 1970s, a decade of stagflation that confounded investors. So if you’re looking to increase your investment gains to make up for Medicare’s shortfall, you’ll have your work cut out for you. Thankfully, there’s a way that could help protect your retirement savings while still building wealth into the future. That’s through investing in precious metals like gold and silver. Gold and Silver Can Help Build Wealth Gold and silver have a track record of gaining value through times of economic difficulty. During the 1970s they averaged 30% annualized gains over the course of the decade, far outpacing both stock markets and inflation. And over the past 20 years both gold and silver have also handily outperformed stock markets. With high inflation and low economic growth on the horizon, the stage is being
Social Security Continues to Disappoint
Although the Social Security system was originally intended only to provide a backstop to retirees who may not have had enough money saved up for retirement, the initial benefits received by Social Security recipients lured many people into a false sense of security, leading them to believe that they could survive in retirement solely on their checks from the government. Despite the continued erosion of benefits over the succeeding decades, and court rulings making it clear that Social Security benefits are not a promise from the government, there remain many Americans who believe not only that they are owed money from the government in retirement but that they will be able to survive and pay their expenses with those benefits. They couldn’t be any more mistaken. Financial Projections May Be Too Rosy With news of the President’s supposed dalliances with adult film stars and the alleged high school shenanigans of his Supreme Court nominee filling headlines and titillating the general public, Social Security and its problems have been relegated to the back pages of newspapers and the archive sections of websites. This year’s Social Security trustees’ report didn’t report anything groundbreakingly new compared to last year’s report, so everyone expects the system to go bankrupt precisely when the report says it will. Let’s take a step back and refresh our understanding of how Social Security is funded. Employers and employees pay a portion of their salaries in Social Security taxes to the federal government to fund Social Security benefits. That means that it is a transfer system, taking money from workers and redistributing them to fund retirees. For decades, the amount of money taken in through Social Security payroll taxes exceeded the amount of money paid out in benefits. That extra money was exchanged for non-marketable government securities that were kept in a trust fund, and the money was spent. The interest on the securities in the trust fund was also used to help pay for Social Security benefits, so despite the fact that Social Security taxes have been exceeded by Social Security benefits for nearly two decades, the trust fund has not had to be touched. Until now. The sum of Social Security taxes plus interest on trust fund securities is now exceeded by the sum of Social Security benefits, and that financial situation will likely only continue to deteriorate as the trust fund has to be drawn down to pay for more and more retirees’ Social Security benefits. As the trust fund is drawn down, interest income decreases, and the likely future trend is for Social Security tax receipts to continue to decrease too. Current projections are for the Social Security trust fund to be completely drawn down by 2034, by which point Social Security taxes can only pay for about 75% of expected benefits. Of course, all of this assumes a relatively rosy economic situation over the next 16 years. In the event of another financial crisis you could expect that Social Security tax receipts will decline by an even greater amount than projected, placing Social Security on an even weaker financial footing. The moral of the story, then, is not to expect anything near a full payout from Social Security. With so much kicking the can down the road having taken place already, there’s not really any time to get the program onto sound financial footing. The trust fund may very well end up running out of funds well before 2034, and any benefits paid out may be well less than 75% by that time. COLA Doesn’t Keep Pace With Spending The second problem with Social Security is its cost of living adjustments (COLA). The government continually tinkers with the data used to makes its COLA increases in order to minimize the amount of money the government has to pay. There was no COLA increase in 2016, a 0.3% increase in 2017, and a 2% increase in 2018. While it’s expected that COLA will increase 2.8% next year, there’s no guarantee that will happen, as the government would like to try to continue minimizing COLA payments to keep the program solvent. Even if it does happen, that means that someone who received $1,000 a month in 2015 will receive about $1,050 a month in 2019, or an increase of $600 per year. Given how much food, housing, and gas have increased in price over the past several years, that increase isn’t nearly enough to cover the actual increase in the cost of living. Add healthcare into the mix and things get even worse. Healthcare costs vastly outstrip inflation and are expected to continue doing so into the future. And as you age, you’re going to need more and more medical care, driving costs up even further. Even a 5% annual COLA probably wouldn’t be enough to cover rising costs for most seniors. What You Can Do It’s more important than ever for Americans to develop their own safety nets for retirement. With the implosion of Social Security and the chronic underfunding of pension plans, those who don’t put away money for their retirement are playing a dangerous game of Russian roulette. Part of that strategy of saving for retirement includes properly diversifying your portfolio so that you aren’t exposed to a single sector of the market. And that doesn’t mean plowing all of your money into a mixture of various stocks, either. Stocks, bonds, commodities, precious metals, real estate, and even cryptocurrencies all can form part of a well-diversified portfolio. Precious metals in particular can form a strong part of a well-diversified portfolio, as they hedge against both inflation and financial downturn. Investors who placed 30% of their portfolios into gold before the financial crisis would have seen their portfolios outperform pure stock portfolios by 60% during the crisis. Even if you haven’t done a great job of saving for your retirement yet, it’s never too late to start. Even a little bit of money saved and invested is better than having nothing. Once you’ve left the workplace it can be very
Latest Proposal to Save Social Security Doesn’t Mean You Can Rely On It for Retirement
By now it’s no secret that Social Security is in dire straits. According to the latest Social Security Trustees Report, Social Security taxes have long been unable to pay for Social Security benefits. Only because of interest gained on Social Security’s trust fund has the system been able to keep paying benefits without dipping into the trust fund. Now that has changed too, so that Social Security tax receipts and interest from the trust fund are no longer sufficient to cover Social Security benefits. The entire $2.9 trillion that is stored up in the trust fund is expected to be drawn down over the next 15 years, with the trust fund falling to zero in 2034. At that point Social Security taxes will only be enough to cover less than 80% of expected Social Security outlays. Unless Congress does something to increase Social Security taxes or to cut Social Security benefits, retirees in a few short years can expect to receive less than 80% of the Social Security benefits they expected. For those who expected to rely primarily on Social Security in retirement, that could be catastrophic. The Democratic Plan to Save Social Security Democrats in Congress have once again introduced legislation to save Social Security, the Social Security 2100 Act. The legislation has been introduced in previous years too, but with the Democratic takeover of Congress it stands a greater change of at least getting a hearing even if it doesn’t pass. The legislation makes a number of changes to Social Security that are intended both to increase Social Security revenues while simultaneously increasing benefits to many recipients. First, the legislation increases Social Security payroll taxes from the current 12.4% to 14.8% by 2043. That is intended to bring in more revenue to the system. Second, high income earners will now have to pay more in Social Security taxes. For 2019 only the first $132,900 in income is subject to Social Security taxation. Any income above that level is not subject to Social Security taxes. The Social Security 2100 Act would mandate that any income above $400,000 would once again be subject to Social Security taxes, again bringing more money into the system. Third, the bill would exempt Social Security receipts from taxation for those bringing in under $50,000 per year ($100,000 if married filing jointly) in retirement. Finally, the bill would increase benefits for retirees and ensure that cost of living increases are calculated differently to ensure increases that actually keep pace with the rise in the cost of living. Potential Drawbacks As with any plan, there are positives and negatives. By raising Social Security taxes, the bill will make it more expensive to hire workers and will lead to a suppression of wages. And it will have the same effect on higher wage-earners, leading to a reduction in their salaries as well. While the increase in benefits to lower-income Social Security recipients would undoubtedly be welcome, one has to wonder whether the increase in revenue will be sufficient to cover that increase in cost. Social Security financial projections have often been known to be overly optimistic. When Social Security was last overhauled in 1983 the system was projected to remain in sound financial condition for the next 75 years. Now we know that that fix will last 51 years at best. While the Social Security 2100 Act is intended to keep Social Security solvent through the end of the century, how do we know that it isn’t just kicking the can down the road, with Social Security needing yet another increase of funding 40 or 50 years from now? Social Security Is Supposed to Be a Backstop, Not a Primary Source of Funds What attempts to fix Social Security fail to take into account is that Social Security was intended to be a safety net, a backstop for when everything else failed, and not the primary source of anyone’s income in retirement. But over the years more and more people began to take Social Security benefits for granted, assuming that the system would pay them handsomely throughout retirement. Cases such as Ida May Fuller, the first Social Security recipient, who paid $24.75 in Social Security taxes but received $22,888.92 in benefits over 35 years, undoubtedly did much to build up those assumptions. The reality is that the only person you can depend on for retirement is yourself. Pensions have all but disappeared from the workplace and those that still exist are severely underfunded, Social Security is on incredibly rocky ground, and hoping to rely on friends or family is not viable. Unless you make a serious effort to save and invest for retirement, you will have a very rough time once you stop working. That means taking advantage of every saving and sound investment opportunity you can. Take advantage of workplace 401(k) plans, especially if they offer matching contributions. Open IRAs, brokerage accounts, anything you can to save money for the future. And above all make sure that your assets are protected by investing a portion of them in gold. While stock markets can generate great returns for investors in good years, they can erase those gains in a matter of months. Gold, on the other hand, keeps its value year after year. It has protected investment portfolios for centuries, and will continue to do so for centuries to come. And with modern investment vehicles such as gold IRAs, investors can enjoy the same tax advantages as their traditional IRA while still benefiting from the protection that gold offers. Regardless of how you choose to structure or diversify your portfolio, it is crucial that you have a portfolio to work with. There are too many horror stories of retirees who expected to rely on Social Security but who realized far too late that their plans were financially untenable. Don’t let that happen to you. Start saving early and save as much as you can to ensure that you have a sound financial future and a comfortable retirement.
Just How Flawed Are the Government’s Social Security Projections?
For decades, American retirees have come to depend on Social Security for at least a part of their retirement income. While many retirees have made their own retirement plans and only rely on Social Security for supplemental income, many have planned for Social Security to make up the bulk of their retirement income. That was never the intent of the Social Security System, as it was intended merely to provide a stopgap so that those who entered retirement wouldn’t be completely destitute if something were to happen to them. But because the first Social Security recipients received so much more money than they paid into the system, many people thought that they could rely entirely or mostly on Social Security for their retirement income. Anyone who still thinks that way is about to get a harsh wake-up call. The current state of the Social Security System is nothing short of abysmal. While the system currently has significant amounts of assets, its primary trust fund is expected to run out of money by 2035 at the latest. But that estimate may be excessively rosy, resting on assumptions about future economic performance that may be far too optimistic. One thing is for certain, though. Within less than two decades Social Security is going to face a major crisis. If the federal government fails to find a fix to the problem, those who expected to rely on Social Security for their retirement income will find themselves with far less income in retirement than they had hoped for. Social Security’s Funding Shortfall Many people may not realize that the Social Security System already spends more on benefits than it takes in through Social Security payroll taxes. According to the 2019 Social Security trustees’ report, the system is expected to take in $885 billion in Social Security taxes and $35 billion in taxes on Social Security income, for a total of $920 billion in Social Security revenue. But the system is expected to pay out $994 billion in Social Security benefits. That revenue gap is only filled by an expected $83 billion in interest income from the Treasury securities held by the trust fund. Overall, the system is expected to add only $3 billion this year to the trust fund’s assets. Come 2020, the total amount of Social Security benefits paid out will exceed the combination of Social Security taxes and interest income. That will require drawing down the Treasury securities currently held by the trust fund. And at the current expected drawdown rates, the trust fund is expected to be depleted by 2035. At that point, Social Security receipts will only be enough to pay for about 80 percent of Social Security benefits. Which Way Will Interest Rates Go? One of the underlying assumptions behind Social Security’s continued funding is that of interest rates. It was expected that interest rates would continue to rise, keeping the trust fund funded for a longer amount of time. Last year the fund earned an average of 2.9% on its Treasury security holdings. But with the Federal Reserve now cutting interest rates, the securities held by the trust fund will earn less, leading to a faster depletion of the fund’s assets. The fund holds a variety of Treasury securities with various maturities. As of December 2018, the fund’s longest-dated securities were scheduled to mature in 2033. Much of the fund’s holdings are in shorter-term Treasuries, whose interest rates continue to decline. For instance, while the trust funds new purchases averaged an interest rate of 3.000% in December 2018, they only averaged 2.125% in August 2019. And as short-term securities mature and are rolled over, those new securities will earn less interest than the old ones, leading to a decline in interest income. The further interest rates continue sinking, the worse the trust fund’s financial situation will get. Special Issue vs. Publicly-Traded Securities Then there’s the uncomfortable fact that the trust fund’s securities are made up of special issue Treasury securities, i.e. non-marketable Treasury securities. These securities are not available to be bought or sold by the public, but can only be issued to governmental entities such as the Social Security trust funds. In order to raise the money to pay for Social Security benefits starting in 2020, those securities will have to be sold, then the money received can be disbursed to Social Security beneficiaries. But since the government is the only entity that can buy those securities, this leads to some interesting accounting problems. The trust fund currently holds $2.9 trillion in Treasury securities. That means that the government will have to purchase and liquidate about $200 billion per year on average of its own debt in order to provide the funds to pay Social Security recipients. But where will the government, which will already be running trillion-dollar deficits, get the money to do that? Why, it will have to issue new debt of course. Thus we’re looking at hundreds of billions of dollars in new debt being issued every year just to pay for Social Security benefits. Over the next 16 years that’s another $2.9 trillion or more that will end up being added to the debt held by the public to fund the liquidation of Social Security’s trust fund. And that’s assuming that the government can find buyers for that debt. In a worst-case scenario, the government may just decide to reduce benefits rather than continue drawing down the trust fund and issuing new debt. No matter which way you slice it, Social Security is in dire financial shape, and those who expect to be able to rely on it for retirement income will be sorely disappointed. It’s incumbent upon those looking to retire comfortably to take more responsibility for their own retirement savings. Between the demise of pension plans, the impending bankruptcy of Social Security, and the near certainty of a coming recession, those looking to retire in the next few years will face a bleak economic future and will have to make some hard
3 Reasons You Can’t Rely on Social Security and How You Can Protect Against That
The Social Security System has operated for over 80 years as a final backstop to prevent seniors from living out their last years in absolute poverty. While the system was never intended to be the sole source of retirement income, many seniors over the years have come to rely more and more heavily on Social Security in their twilight years. Given the problems facing the system today, that could be very problematic. Many seniors have complained in recent years that Social Security income has hardly budged over the past decade. Low official inflation figures, the result of the low interest rate environment brought about by the Federal Reserve since the financial crisis, have meant that cost of living increases have been largely stagnant. But with rising prices for food, housing, and gas, many seniors reliant on Social Security have been getting pinched. The problems with Social Security are numerous, and they will only get worse over the next few years. Seniors who are expecting to rely on Social Security for the bulk of their retirement income could find themselves in a bind unless they begin to take steps now to protect themselves. Social Security Is Underfunded The primary problem with Social Security is that the system is woefully underfunded. There are a number of reasons behind that, but one of the most serious is that Social Security doesn’t have enough income to pay out all the benefits that it has to pay. This is a problem that has occurred repeatedly throughout Social Security’s history, and is rearing its head once again. Over the history of Social Security, the system has often taken in more money in Social Security taxes than it paid out in benefits. The excess revenues were rolled over into US government Treasury securities, and the funds used for other government spending. That was the origin of the Social Security trust fund. The interest on those Treasury securities in the trust fund was used to contribute further to pay Social Security benefits. But today Social Security benefits paid have grown larger than the combined amount of Social Security taxes and the interest on the trust fund. That means that the trust fund securities have had to start being liquidated in order to pay Social Security benefits. By 2035 at the latest, the trust fund is expected to be completely depleted. And at that point, Social Security taxes are only expected to provide enough income to the system to pay about 80% of expected Social Security benefits. If you’re expecting to rely on Social Security in retirement, are you prepared to deal with a 20% hit to your benefits? If not, you’ll need to ramp up your personal savings in order to deal with that potential income loss in the future. Population Growth Is Overestimated Another reason Social Security is underfunded is that the system has to project far into the future in order to predict Social Security outlays. Like many pension funds, the assumptions Social Security has made are overly optimistic on the growth side. Since Social Security has to make projections up to 75 years into the future, overly optimistic long-term projections can lead to short-term and medium-term financial difficulties. Social Security relies on a constant stream of new workers entering the market, since current workers’ Social Security taxes pay for the Social Security benefits demanded by retirees. Social Security’s predictions for population growth have not only overestimated the future growth in population, they have consistently overestimated population growth over time. And that has resulted in overly optimistic predictions about future income from Social Security taxes. Employment Is Overestimated Not only have predictions about population growth been overestimated, but predictions about employment have been similarly overestimated. The labor participation rate has seen a significant decrease in recent years that shows no signs of abating, meaning that even if the population increases, the number of employed Americans won’t grow as quickly as it has in the past. That means that Social Security tax revenues won’t grow as much as the system is predicting either. And with a growing population of retirees growing older and living longer, the amount of Social Security benefits being paid out will only continue to increase. Retirees Will Be on Their Own This growing trend of rising Social Security benefit payments plus lower Social Security taxes means that, without a long-term fix, Social Security recipients won’t be able to expect the full amount of benefits they otherwise would be entitled to. And with Congress largely oblivious to the problems facing Social Security and doing nothing to fix the problems with the system, the likelihood of a fix occurring anytime soon are slim. Retirees need to be cognizant of the problems facing Social Security and need to take steps to secure their retirement without relying on Social Security. That means boosting their contributions to 401(k) or TSP accounts, setting up IRAs, or investing for retirement through brokerage accounts. And the more money they have invested in those accounts, the more they will need to protect those investments against loss. Many investors found out the hard way in 2008 that what goes up must eventually come down. Stock markets lost over half their value during the financial crisis, destroying years of investment gains for millions of investors. Those investors have loved seeing the recovery since then, especially the bull market in stocks that has occurred since 2016, but they know that the next crash is just around the corner. When it occurs, they want to be prepared. That’s why so many investors have made the move into gold, hoping to benefit from gold’s protective abilities. Gold’s price really took off during the financial crisis and continued to grow for years afterward. With gold already making great gains in 2019, the outlook for the next few years is similarly bullish. The greater the likelihood of a recession and stock market crash, the better gold will perform. If you are concerned about your retirement, understand the need to
How Your Social Security May Change in 2020
Millions of American retirees receive Social Security payments each month. And while Social Security wasn’t intended to be the sole source of retirement income for retired Americans, many people rely on Social Security for some or even all of their income in retirement. That may be due to poor performance of their investments, losing their pension as their company declares bankruptcy, or for any number of other reasons. And for those who depend on Social Security, there are changes coming in 2020 that may affect how much they receive. 1. COLA Increase in 2020 The first big change to Social Security is that recipients are receiving a cost of living adjustment (COLA) for 2020. Granted, it’s only a 1.6% increase, but that’s better than nothing, which is what many Social Security recipients have received as COLAs in the past. But that increase, for many households, won’t even keep up with the rise in the cost of living. According to the government, the actual increase in the cost of living was 2.3% last year, so seniors are actually losing purchasing power even with the COLA increase. As prices for food, energy, and healthcare continue to rise, senior households find themselves in ever deeper holes. For those nearing retirement or planning for retirement, this should be motivation to boost your retirement savings so that you’re not completely dependent on Social Security for your retirement income. 2. Social Security Benefits Are Taxed If you’re one of those households whose Social Security benefits are taxed, you know all too well how the tax man can hurt your retirement income. It doesn’t seem to make sense that after you’ve paid taxes to Social Security your entire working career, the benefits you receive in retirement are taxed, but that’s the way it is. And because the salary thresholds for that taxation aren’t indexed to inflation, more and more Americans on Social Security end up having to pay taxes on their benefits each year. Right now over half of all Americans receiving Social Security pay taxes on their benefits. Those whose income is between $25,000 and $34,000 ($32,000 and $44,000 for married couples) could see up to 50% of their benefits taxed. Those whose income is above $34,000 ($44,000 for married couples) could see 85% of their benefits taxed. Those figures haven’t been changed since 1993. Had they been indexed to inflation, they would now be $45,000 to $61,000 ($57,000 to $79,000 for married couples), something that would exempt many more households from having their Social Security benefits taxed. So even though you may welcome your COLA increase, over time it will bump you into having to pay taxes on your Social Security benefits if you aren’t paying taxes on them already. 3. Earnings Subject to Social Security Tax Increasing Most high earners don’t pay Social Security taxes on much of their income. But the amount of income liable to Social Security taxation is increasing this year from $132,900 to $137,700. That will only affect a small percentage of workers currently in the workforce, but it will result in those workers having to pay higher payroll taxes. 4. Changes Made to IRAs and 401(k)s With the new changes made to IRAs and 401(k) accounts, retirees now can wait until they’re 72 to begin taking required minimum distributions (RMDs) from their retirement accounts. While that can help them increase the size of their nest egg in retirement, it may also mean that their RMDs will get bigger too. And larger RMDs mean more annual income which, when combined with Social Security income, can lead to more of your Social Security benefits becoming subject to taxation. It’s important to remember, too, that none of these changes have any bearing on the fundamental inability of Social Security to fund itself going forward. From here on out until 2035 at the latest, Social Security taxes will be insufficient to fund Social Security benefits. The Social Security trust fund will be slowly liquidated over the next 15 years, and by 2035 it will be completely exhausted. From that point forward, Social Security tax receipts will only be sufficient to fund about 80% of Social Security benefits. Barring a last-minute change from Congress, which until now seems not to be concerned at all about Social Security’s impending demise, seniors can expect to receive far less Social Security income in retirement than they may have planned on receiving. Are you prepared for that eventuality? The coming collapse of Social Security will mean that seniors will be responsible for an increasing amount of their retirement income. Unless they’ve saved and invested enough before retirement, there’s a good chance that they’ll enter retirement with insufficient funds to live comfortably. Many who may have nice large 401(k) balances today may think they’re all set. But the reality is that a major stock market correction is just around the corner. Once that happens, unless they’ve taken steps to protect their assets, they’ll watch their account balances plummet just like many investors did in 2008. Back then, those investors who had the foresight to invest in gold saw their investment portfolios make great gains, while those who stuck to stocks saw their investments lose over half their value. Investors will have to make that choice again in the near future, risking everything to wring out every last penny from the stock market melt-up, or choosing to protect their assets in advance by investing in gold.
Learn How Gold Can Help You In Retirement
When times get tough, investors look for safe havens to help protect their assets. And with everything going on in the world today, it’s no wonder that investors are flocking to safe haven assets in a way that they haven’t in years. No one wants to be left holding the bag when inflation skyrockets or stock markets plummet, so more and more investors are taking steps to protect their hard-earned retirement savings. One of the traditional safe havens that has seen renewed popularity is gold. Gold has a history of protecting investor assets against loss, inflation, and currency devaluation. Through crisis after crisis, gold has remained stable, maintaining its value when other assets fall by the wayside. But not everyone knows how easy it can be to invest in gold. Even if you understand the many advantages of investing in gold, putting your knowledge into action can seem daunting. That’s why Goldco has created this guide to help you buy gold for retirement. If you’re looking to safeguard your retirement savings and ensure that they’re there for you when you need them most, this guide has all the information you need to help you get started with buying gold for retirement. Why Invest in Gold You may already know that gold can be a solid investment and one that can help you protect your assets. But if you don’t, or if you have a general sense of gold’s abilities but haven’t ever seen gold’s benefits articulated, here are a few reasons you might want to invest in gold. Diversify Your Portfolio One benefit of investing in gold is to diversify your investment portfolio. All too often, investors think that by investing in a variety of stocks and bonds they have come up with a well-diversified investment portfolio. But in the event of a major financial crisis, both stocks and bonds could lose value, as we saw in 2008. Real diversification means holding assets in numerous different asset classes, including investments in alternative assets such as real estate, agricultural commodities, and precious metals. Hedge Against Inflation Gold has also acted as a traditional hedge against inflation. While the value of paper currencies such as the US dollar loses value to inflation every year, the value of gold keeps pace with inflation over the long term. Gold’s performance during times of high inflation can also be quite dramatic. During the 1970s, for instance, gold’s average annualized growth rate was over 30%, at a time when inflation peaked at 11% and stock markets were nearly flat over the decade. If you’re looking for an asset to protect your wealth against high or growing inflation, gold could be what you need. Protect Against Market Crash Gold also has a reputation for performing well when stock markets aren’t. That’s why you’ll often hear gold referred to as a countercyclical asset. In the aftermath of the 2008 financial crisis, gold nearly tripled in value while stocks were still struggling to regain their pre-2008 levels. Many investors whose stock investments lost big in 2008 saw gold’s performance and vowed that they would be invested in gold the next time such a crisis was on the horizon. Is now the time? Grow Your Assets Of course, it isn’t just during times of economic weakness that gold can deliver asset growth. Over the long run, gold tracks well when compared with stock exchanges, and over the past 20 years has outperformed them. Since 1971, gold has grown at an annualized rate of 7.84%, versus 7.78% for the S&P 500 and 7.48% for the Dow Jones Industrial Average. And since 2001, gold has grown at an annualized rate of 9.80%, versus 5.76% for the S&P 500 and 5.66% for the Dow Jones. With stock markets showing signs of weakness and potentially on the verge of a major correction, gold’s performance versus stock markets could end up being even greater in the coming years. That’s one reason more and more investors are choosing to invest in gold. How to Invest in Gold Now that you know the advantages of gold, you may be wondering how you go about investing in gold. There are two primary options that are available today if you want to invest in physical gold coins or bars. The first is investing in gold through a gold IRA. The second option is to make direct purchases of gold coins or bars, which you then can store at home, at a bank, or at a depository. What Is a Gold IRA? A gold IRA is, as it sounds, a tax-advantaged IRA retirement account that allows you to invest in physical gold coins or bars. It offers the same tax advantages as any other IRA account, and can be either a Traditional gold IRA account or a Roth IRA account. A gold IRA is a popular way for investors to protect assets they already hold in 401(k), 403(b), TSP, IRA, or similar retirement accounts. And a gold IRA is subject to the same rules and regulations as any other IRA account. Gold IRA Rules Before opening a gold IRA, you’ll want to familiarize yourself with the rules affecting gold IRA accounts. While a gold IRA is subject to the same rules and regulations as other IRA accounts, there are some special restrictions that you’ll want to be aware of before you invest, so that you don’t inadvertently expose yourself to tax consequences or penalties. Be sure to consult with your tax advisor or financial advisor before making any investment decisions. Types of Coins The primary limitation on a gold IRA is the types of coins it can invest in. Like any other IRA, a gold IRA cannot own collectibles. The definition of collectible is clearly defined within the Internal Revenue Code. This means that some older gold coins, like St. Gaudens $20 gold pieces or South African Krugerrands, are not eligible to be owned in a gold IRA. If your IRA were to purchase a collectible, that would be considered
Gold IRA Rollover: A Complete Guide
During times of political and economic uncertainty, people often flock to the safe haven of gold. Gold, unlike most other assets, has stood the test of time, maintaining its value regardless of the goings-on of the world around it. Many people trust gold as a hedge against difficult economic times and seek to hold a portion of their portfolio in gold. Whether it’s buying a handful of gold coins to use as currency in a natural disaster or survival situation, or buying gold through a gold IRA to diversify a retirement portfolio, gold continues to be one of the top assets investors trust to protect their wealth. Paper financial assets may rise and fall in value, even becoming worthless when the companies that issue them go bankrupt, but when was the last time you heard of someone going bankrupt owning gold? As much as central banks love to deride gold as a barbarous relic and as much as they downplay its importance to the world economy (even while they buy tons and tons of gold each year), gold is as close to a risk-free asset as it gets. When you own an ounce of gold, you own an ounce of gold. That gold is an asset, it isn’t someone else’s debt, or a claim to a partial ownership of a company. That gold is yours exclusively, and no one else’s. Gold also appreciates in value over time because its supply is relatively limited. Gold mining is capital intensive, so annual mining totals don’t add significantly to the overall gold supply. With an increasing population and growing demand, that leads to each ounce of gold continuing to gain in value. As one of the assets of first resort for investors in the event of financial crises, gold maintains its value throughout economic turbulence. Many people who understood the importance of gold during the 2008 financial crisis benefited from holding it in their portfolios. Many who didn’t buy gold back then learned from their mistakes, and are buying gold coins and gold bars today to ensure that their assets remain protected in the coming months. If you are interested in learning more about how to buy gold, continue reading this gold IRA rollover guide. What Is a Gold IRA? To begin the gold IRA rollover guide, let’s begin by discussing how a gold IRA differs from other IRAs, and a few reasons you might consider starting a gold IRA. A gold IRA operates differently from other IRAs in that it allows investors to hold their IRA assets in the form of physical gold coins or bullion. Rather than owning paper assets such as stocks and bonds, or paper claims to gold funds such as shares in a gold ETF, a gold IRA actually holds physical gold that you can touch. That allows you to benefit from the same tax advantages of conventional IRAs while still benefiting from the protective status of gold. Buying gold through a gold IRA can offer you numerous advantages. These include diversifying your portfolio, providing a hedge against inflationary monetary policy and devaluation of the dollar, and offering the potential for asset growth even during tough market conditions. Portfolio diversification with a gold IRA can help alter the risk exposure of your retirement accounts. A portfolio heavily weighted with stocks and bonds can leave you subject to the ups and downs of Wall Street. But gold is an asset that often performs well even when stocks and bonds don’t. Gold can also protect against inflation as it maintains its value over time. While an ounce of gold still buys just as much in terms of real goods as it did at the beginning of the 20th century, the dollar has lost 97% of its value since then. Someone who had held a $20 gold coin since that time would see that coin worth well over $2,000 today, whereas someone who had held a $20 checking account balance since that time would see it worth just $20 today. Using a Self-Directed IRA to Buy Gold Gold IRAs are a form of self-directed IRA, in which investors themselves are fiduciaries and are responsible for choosing their investments. That requires a little bit of knowledge of the IRA process, particularly when funding a gold IRA through a gold IRA rollover. Setting up a gold IRA will require a new IRA account to be set up that will house your gold assets. In order to fund that new IRA account, you can roll over funds from an existing 401(k), IRA, or similar retirement account into your gold IRA to buy gold. Those rollovers can be done tax-free by transferring those funds directly between accounts. It isn’t too difficult, but if you have questions or concerns then you may want to consult with your tax advisor to make sure that you don’t accidentally incur any tax liabilities. Self-directed IRAs allow investors to invest in a wide array of assets, but among the most popular are gold, silver, and other precious metals. You’ll also have to arrange for storage of your gold coins and bullion, as you can’t hold them yourself. Your gold IRA assets will be managed by an IRA custodian and stored at a bullion depository. Your custodian and bullion depository will help you monitor your assets and keep them stored safely and securely against theft. If you want to learn more about how to start a gold IRA and execute a gold IRA rollover, the experts at Goldco can help answer your questions about the gold IRA rollover process. We have helped thousands of our customers go through the process of setting up a gold IRA, selecting a gold IRA custodian, and making their first gold IRA purchases. Transferring Funds Into a Self-Directed IRA Account The process of funding a gold IRA is made much easier if you already have retirement assets ready to roll over. The gold IRA rollover process can be quick and simple. Funds from a 401(k), 403(b), TSP, or other
With a Recession on the Horizon, How Can You Protect Your 401(k) Assets?
The stock market bull run of the past few years has created more than a few 401(k) millionaires. But with economic headwinds increasing, many investors are getting nervous about just how long they’ll remain 401(k) millionaires. Investors who have made lots of money in recent years are aware that a stock market crash could wipe out their wealth just as easily as the bull market grew their wealth. And many of those who remember 2008 are worried that the next crisis could be just as bad as 2008, or even worse. The financial crisis saw many people lose significant portions of their savings and investments, investments they had worked years or even decades to build up. Many lost over half their savings as markets plummeted as a result of the financial crisis. Those investors don’t want to see a repeat of 2008, and they want to do anything they can to avoid making the same mistakes. But with so many investment options out there, what’s the best way for investors to protect their 401(k) assets from losing value in the coming years? Here are three things to think about when it comes to protecting your 401(k) assets. 1. Don’t Stop Contributing to Your 401(k) Many people who contribute to 401(k) accounts may think that cutting off their 401(k) contributions during a crisis might help them financially. But that isn’t necessarily the case, so if you’re still working and contributing to a 401(k) plan, it’s important that you not stop contributing to your plan, with a few caveats. We’ll assume that, like many Americans, you have employer matching contributions. We’ll also assume that your 401(k) plan offers investment options that aren’t limited just to funds that invest only in stocks. Because of employer matching contributions, you essentially get free money to invest. In many cases that can double the amount of money that you’re investing in your 401(k) plan. By pulling back on your 401(k) contributions you could be putting those employer matches at risk, costing yourself a lot of money that you could be profitably investing. You would essentially be leaving money on the table. Most 401(k) plans offer a variety of investment options in funds that invest in stocks, whether that be large-cap, mid-cap, or small-cap funds. But many will also offer investments in bond funds, money market funds, etc. If your 401(k) plan offers those, especially money market funds, those can be a useful place not only to store your existing 401(k) assets until you decide what to do with them but also to place your future contributions, at least temporarily. Many people have a tendency to buy high and sell low. It’s one of the types of behavior that you see a lot during speculative manias, stock bubbles, and then stock market collapses. People get sucked into the market when prices are nearing all-time highs, thinking growth will continue forever. Then when the collapse comes, they get disillusioned, think they’ve made a mistake, and sell out at the bottom. What they need to do is get out at the top and get back in at the bottom. But that’s easier said than done, and it requires both diligence and control over fear that not many people have. That’s why continuing to contribute to your 401(k) but placing your assets into safe havens is comparatively easier. In doing so, you can miss out on big losses, maintain your wealth, and position yourself to come out safely during the upswing. 2. Reduce Exposure to Volatility Market timing is notoriously difficult, and in many cases picking both the top and bottom of a market cycle has more to do with luck than skill. And that’s why reducing your exposure to volatility can be helpful. Many investors start seeing stocks decline and think that they’ll recover. Only when it’s abundantly clear that markets are in a nosedive do they finally accept the reality that their stock investments won’t recover. And then they make the mistake of selling at the bottom, locking in losses and missing out on the gains that occur from a rebound. The temptation to wring every last penny of gains is a great one. But sometimes you have to know when to minimize your risk and your exposure to volatile financial markets. Sometimes sitting things out or remaining on the sidelines can be the better choice. And when things start to look risky, as is starting to happen today, that could be the right time to start thinking about reducing your exposure to volatility. 3. Diversify Your Portfolio One way to reduce your risk exposure is to diversify your portfolio so that you aren’t overexposed to one particular company, sector, or region. In other words, don’t put all of your eggs in one basket. For many people this has traditionally meant that they invest in a mixture of stocks and bonds. When stocks are booming they increase their holdings of stocks, and when stocks decline they increase their holdings of bonds. But what happens when both stocks and bonds decline? We saw that most recently in 2022, as both stock markets and bonds markets saw large declines. With the performance of financial markets being highly dependent today on what the Federal Reserve ends up doing with regard to monetary policy, investment decisions have to take that into account. And with the Fed now having to decide between cutting rates or keeping them elevated for longer, no one really knows how markets are going to react or perform over the next few months, let alone the next few years. That uncertainty about the future is alarming to many Americans, and understandably so. And that’s why so many people are starting to diversify their portfolios with gold. Gold has a long history as a safe haven asset and store of value, as well as a reputation for maintaining value through both good times and band. Millions of people rode out the 2008 crisis watching their 401(k) balances plummet, all the while watching
