It’s no secret that the Social Security System is in a shambles. With annual Social Security benefits now exceeding payroll taxes, Social Security’s trust fund is being depleted. And what was expected to be a slow depletion could end up speeding up this year and into the future.
If you’re expecting Social Security to make up a significant portion of your retirement income, you’re going to want to start taking steps right now to ensure that you have other sources of income in retirement. With the system already in the first stages of decline, you can’t afford to wait until it completely collapses, otherwise you’ll end up in retirement with significantly less income than you had hoped for.
Declining Payroll Taxes
The already precarious financial position of Social Security isn’t improved at all by the fact that payroll tax income is dropping precipitously as a result of the coronavirus lockdown gripping the country. With over 20 million people having been added to the unemployment rolls recently, money flowing into the Social Security system is way down. And with no end to the lockdowns in sight, that decrease in income could last for quite a while.
Even when the lockdowns are lifted, it will take a long time for business to get back to normal. Restaurants in particular will be hard-hit, as many will likely go under before they’re able to get back into operation. That could leave Social Security payroll taxes much lower for years, increasing the rate at which the trust fund is drawn down. Right now the projection is for the trust fund to be completely depleted by 2035, but that date could be at least two years sooner now, if not more.
Increased Benefit Payments
Many older workers who are currently being laid off or furloughed may very well never return to the workforce. If they judge their prospects for future employment as being slim, and they’re eligible to begin drawing Social Security, they may very well apply for Social Security benefits.
That would mean that in addition to declining income, Social Security disbursements would increase, giving the trust fund a double whammy. Just how large Social Security’s funding deficit will become is hard to anticipate right now, but within a few months we should have a better idea of just how financially dicey Social Security will get.
Fewer Future Workers
While many people may joke about a baby boom in nine months, that isn’t necessarily going to be the case at all. Many people are worried about the coronavirus, about their health, and about the future of the economy. We keep hearing stories about how the economy will never get back to normal, how we’re going to have to face 12 to 18 months of rolling lockdowns, or how the nature of business will be forever changed.
With such economic uncertainty, many Americans don’t know if they have a future in the workforce, or what their future employment may look like. Many may never return to the same levels of financial prosperity that they once had, which means that they’re likely going to hold off on starting families, having children, etc.
Social Security is already facing a demographic problem, that there are fewer workers in the workforce being expected to fund benefits for a growing number of retirees. With fertility likely to decline in the future as a result of greater economic uncertainty, the number of workers will continue to decline too, placing even greater pressure on Social Security. And that makes it increasingly likely that future retirees will be unable to rely on Social Security for much of their retirement income.
The Coming Collapse
Once the Social Security trust fund is depleted, Social Security tax receipts are only expected to provide enough money for about 75-80% of projected benefit outlays. And those projections are from last year’s report. With the deterioration of the economy so far this year, those financial projections could get even worse. What would you do if Social Security could only pay 70%, 60%, or even 50% of expected benefits?
Those scenarios aren’t far-fetched either, and they’re just as likely to become reality as not. That means that retirees need to plan to provide for themselves even more than they already are. Social Security just won’t be able to be counted on in the future.
Since pension plans too have largely gone by the boards, that leaves retirees to foot the bill for retirement themselves. Whether it’s a workplace 401(k) program, an IRA, a brokerage account, or a combination of different saving and investment vehicles, American workers today need to do everything they can to maximize their retirement savings and assure themselves a comfortable retirement.
That also means they’ll have to choose the right investments, not those that might have worked 30 or 40 years ago, but those that will keep performing for them for the next 30-40 years, into retirement. That means having a properly diversified investment portfolio, investing in gold, silver, and other hedges, and minimizing the risk of big losses as they get closer to retirement.
With traditional backstops like Social Security at risk of disappearing, you’re on your own more than ever before. But don’t let that ruin your dreams of retirement. The sooner you act to secure your financial future, the better off you’ll be come retirement.
Trevor Gerszt is America's Gold IRA Expert, CEO of Goldco Precious Metals, and holds a position on the Los Angeles board of the Better Business Bureau.
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