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

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.

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

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

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.