So far, the official tally
of failed banks remains two (SVB and Signature Bank) – I’m not sure why Silvergate isn’t included. Or Credit Suisse, for that matter. At least five more on a “death watch
” for the time being.
If you found out your bank was undercapitalized like SVB was, you could do what many bank customers did – withdraw your money and stash the cash under your mattress.
But your Social Security benefits work differently.
The money you paid into the trust fund is already spent funding current retirees. That means the money you might think you are entitled to isn’t really yours, as I discussed previously.
However, this also means you can’t just withdraw your contributions if you're concerned something bad is happening at the Social Security Administration.
In our minds, those Social Security taxes we paid are ours. For all intents and purposes, they simply aren’t.
Keep that in mind while you’re reading what follows.
If Social Security was a bank, it would be insolvent
First, the trust fund is having its own “capitalization” problem, as explained in the latest Trustees Report:
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.
The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, will be able to pay scheduled benefits on a timely basis until 2034, one year later than reported last year. At that time, the fund's reserves will become depleted and continuing tax income will be sufficient to pay 77 percent of scheduled benefits.
So right now we’re looking at a 2034 deadline for business-as-usual. Afterward, benefits drop nearly a quarter. (If you thought trying to live on a fixed income wasn’t already hard enough…)
The conclusion is particularly ominous:
Taking action sooner rather than later will allow consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.
What exactly do we need “time to prepare” for?
At a guess? Either significantly higher taxes for those still earning a paycheck – or significantly lower benefits payments.
But who knows? It could be both.
You know, we have a name for systems that transfer money from new investors to earlier investors – they’re called Ponzi schemes. Let’s give the Social Security Board of Trustees a little credit, though – at least they’re telling us right up front that “our” money is gone.
One further complication in the Social Security funding dilemma – Social Security benefits are indexed to inflation (the cost of living adjustment or COLA). But Social Security payroll taxes are not inflation-adjusted! So obviously, as inflation rises, expenses go up much faster than revenues. Not that I’m a fan of increasing payroll taxes! I just want to point out this obvious flaw in our nation’s strange plan to provide some retirees some income (but not enough to live on) for some time…
Problems abound, and solutions are thin on the ground.
Recently, the best lawmakers have come up with? “Don’t retire.”
Let’s “help” you postpone your Social Security benefits until “the right age”
When I discovered this “plan” I couldn’t help but remember Ronald Reagan’s famous quote:
The top 9 most terrifying words in the English Language are: “I'm from the government, and I'm here to help.”
Consider the problem: Social Security is running out of money.
So a bipartisan group of politicians has decided the solution might be to “help older Americans make more informed choices that are likely to result in better outcomes.”
A report from United Income outlining this solution opens with deliberately slippery language:
…research consistently finds that the financial effect of Social Security could be even greater if more people waited to enroll, since monthly benefits can increase in value if retirees delay claiming. But, we don’t know how much is annually lost from households making the sub-optimal decision about when to claim Social Security, how many are making mistakes, or who is making those wrong decisions.
Let me take this masterpiece of mealy-mouthed doublespeak apart for you, line by line.
The financial effect: Money – why don’t they just call it “money”? Don’t ask me, this is how ivory tower bureaucrats communicate.
Could be: There’s uncertainty here, otherwise they’d say “is” or “always.”
If more people waited: Such a lack of specificity! How many more? Waited for how long?
Monthly benefits can increase: They “can” means they might, or they might not – who knows?
How much is annually lost: They’ve already said, twice, that there isn’t any certainty that waiting to claim benefits guarantees more money. Remember, “could be” and “can” rather than “is.” However, they’re calling these uncertain financial effects that aren’t taken advantage of lost. You can’t lose something if it wasn’t really there in the first place! Choosing the word lost invites the reader to imagine those hypothetical benefits were real – and then snatched away. Nonsense.
The sub-optimal decision: In plain English, “a mistake.” See how they’ve moved beyond lost to calling those hypothetical benefits the result of a dumb mistake? Furthermore, sub-optimal for who? (Spoiler alert: it turns out they mean sub-optimal for the Social Security Administration, rather than adult Americans who presumably can be trusted to make their own decisions.
How many are making mistakes: Again, they’re characterizing decisions they don’t like as mistakes -- which is a judgmental and perjorative term. (When I asked Amanda Whitehorse to the senior prom and she turned me down, I said, “You’re making a mistake.” From my point of view she was guilty of making the sub-optimal decision by going to prom with Jake Jones instead. But was that really the sub-optimal decision for her? I don’t know! I don’t claim to know what’s best for someone else. Unlike the authors of this report.)
Who is making these wrong decisions: Here’s the kicker. By moving from the logical-sounding and bloodless sub-optimal to the blunt, plain and extremely biased wrong decisions, the authors have very clearly planted their flag. It’s not just a bad idea, it’s wrong. That’s what we tell children who lie. That’s not how we speak to grownups whom we respect.
Is it a wrong decision to claim Social Security benefits at a sub-optimal time due to health issues that force early retirement? Because your career becomes obsolete? Due to the need to provide full-time care for a family member? To the individual making this decision, obviously not!
But for the reptilian actuaries and bureaucrats who care more about the solvency of Social security as a whole rather than you as a person, you’re just a number on their spreadsheet. Just another wrong decision.
(I apologize for ranting, but this kind of deliberately slippery misinformation just makes me furious.)
Don’t read the report. Here’s their great idea – their amazing plan to solve the Social Security crisis boils down to convincing Americans to:
- Work longer
- Retire later
- Wait until you’re 70 to claim your Social Security benefits
And if you don’t? Well, you’ve lost the benefits you (maybe) could’ve had as a result of a sub-optimal decision and a mistake that is also a wrong decision.
Ultimately, this plan to save Social Security from insolvency is a marketing scheme based on simple math. The average life expectancy in the U.S. is currently 77. I used a Social Security benefits calculator to determine that a retiree who makes a typical wage and retires at age 62 costs the Social Security Administration 16% more than the same retiree who claims a higher benefit at age 70.
That’s it. That’s the whole plan! Convincing retirees to delay claiming their benefits means paying less benefits which means Social Security goes bankrupt more slowly.
Let me warn you again not to read the report – but if you do, you’ll enjoy such thorny word problems as this one:
Among those retirees at risk that start with a greater than 10 percent chance of affording retirement, 95 percent see their chances of affording retirement improve by an average of 28 percent.
I have read that passage at least eight times and I still can’t figure out what it means.
And I guarantee you the “bipartisan lawmakers” who are pitching this so-called plan on Capitol Hill haven’t, either.
Folks, we are in trouble if the best ideas we have for saving Social Security are a marketing scheme to convince Americans who’ve worked their whole lives to accept a smaller piece of their own money.
Saving should be simple
What can you do to prepare for changes to Social Security benefits? I think today is a good time to reconsider your retirement savings plan, factoring in the expected changes in Social Security.
Saving for retirement should be simple – spend less than you earn! Set aside money regularly! Diversify your savings in a variety of assets so it either grows in value or at least preserves value.
You know what makes saving for retirement complicated? Everything else.
It’s hard enough to plan for future expenses when we know today’s dollars won’t stretch nearly as far in the years ahead. Learning more about inflation-resistant investments can help us future-proof our savings.
I'm a big believer in simplicity. That's why I think it's worth taking a minute to educate yourself on the benefits of diversifying your retirement savings with physical gold and silver. They’re simple, they’re straight-forward and they have a much longer track record of preserving purchasing power over time.
Unlike your Social Security benefit or the stock market, physical precious metals will be the same tomorrow as they were yesterday. They can’t go bankrupt. No one can print more of them.
Gold and silver were safe-haven stores of value before the Social Security Administration was invented, and I believe they’ll still be highly valued long after the Social Security Administration disappears.
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.
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