We’ve been reporting on the likelihood that Social Security will suffer from a series of setbacks in the 2030s for quite some time
Now, the Social Security Trustees are beginning to confirm the fears we’ve expressed since 2019. In this year’s report, they summarized the main problem:
Social Security and Medicare both face long-term financing shortfalls under currently scheduled benefits and financing. Costs of both programs will grow faster than gross domestic product (GDP) through the mid-2030s primarily due to the rapid aging of the U.S. population. Medicare costs will continue to grow faster than GDP through the late 2070s due to projected increases in the volume and intensity of services provided. [emphasis added]
Heading into 2023, just a few years shy of 2030, it doesn’t seem like lawmakers are making much progress toward a solution. With the politically charged “debt ceiling” nearing, some proposed solutions have already been shot down by President Biden.
This CNBC report provides the necessary context on what is the first of two major worries that Americans saving for retirement should consider:
Republican Sen. Rick Scott of Florida has called for sunsetting federal programs every five years so Congress can reevaluate them. Republican Sen. Ron Johnson of Wisconsin has called for moving Social Security to the federal discretionary budget, which would require reauthorizing the program’s spending every year.
The Republican Study Committee’s 2023 budget also calls for some big changes, such as raising the retirement age to 70 and requiring 40 years of work.
But the worry is Biden will shut down further consideration of these ideas, which was confirmed by his emphatic response during a recent press conference:
Under no circumstances will I support the proposal put forward by Sen. Johnson and the senator from down in Florida to cut or make fundamental changes in Social Security and Medicare.
Biden’s immediate dismissal of any “fundamental changes” to Social Security is alarming, because changes like that are exactly what would be needed to keep the program healthy as we approach the 2034 deadline.
Which brings us to our next big worry…
COLA draining the Social Security trust fund faster than ever
This year’s Social Security cost-of-living adjustment (COLA), which is intended to keep up with inflation (but usually doesn’t), was 5.9%. The COLA for next year will be 8.7%, which is the highest in 40 years.
With the future of Social Security in question, such a high increase in the COLA could potentially drain the benefits fund even faster. How much faster remains to be seen, but according to the U.S. News, there may be a ray of hope:
the cost of the Social Security COLA will be at least partially offset by higher taxes on workers contributing to the program. The maximum amount of earnings subject to the 6.2% Social Security tax will increase from $147,000 in 2022 to $160,200 in 2023.
Of course, if the increase in COLA is only “partially” offset, then the fund will still be drained at a faster rate.
Couple that with the rather “tired” solutions that tend to get promoted to resolve the fund’s potential shortage in 2034, like a higher income cap on contributions or an older full retirement age … and you simply “kick the can down the road.”
That doesn’t mean the problem is easy to solve, by any means. But the two big worries presented in this article make solving the problem even harder.
A centuries-old solution to Social Security problems
At this point you might ask yourself: “How can I prepare for retirement when Social Security benefits are at risk of being cut?”
One answer would be to consider the following: Although we can no longer rely on Social Security benefits in our future, there is an asset class that's been around for over 2,000 years and will likely still be valued centuries in the future.
That asset class is known as physical precious metals. Gold and silver are the two most popular types of this asset.
Both have also proven to be safe haven assets that can preserve buying power and may even increase in value during economic turmoil.
Wondering why you should include precious metals in your savings? Check the link for a discussion.
Wondering why you already haven’t diversified with precious metals? Learn more with our free info kit that explains the benefits of physical precious metals, and tells you exactly how to get started.
Peter Reagan is a financial market strategist at Birch Gold Group. As the Precious Metal IRA Specialists, Birch Gold helps Americans protect their retirement savings with physical gold and silver. Based in the Los Angeles area, the company has been in business since 2003. It has an A+ Rating with the BBB and hundreds of satisfied customer reviews.
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