The latest Social Security Trustees Report was released last week, and it’s pretty obvious that, as the product of a committee, it was likely produced months ago, before the coronavirus crisis reared its head.
With most states having been on lockdowns since the end of March and throughout April, the financial assumptions made by the trustees’ report really bear no reality to current economic conditions. Social Security recipients would have been far better served had the trustees issued their report later on in the year.
Whether or not Social Security will issue a revision to the report late this year is unclear. It doesn’t appear that anyone is pushing for that right now, although a revision to the report would certainly be helpful. This week brought news that we’ve reached over 30 million jobless claims since the economic lockdowns began. With about 152.5 million total employees in the country as of February, that means that at least 20% of workers have been laid off in the past six weeks.
Those kinds of numbers will have an undeniable effect on the fiscal solvency not only of Social Security, but also of Medicare, both of which are reliant on two sources of funding: payroll taxes and their trust funds. With payroll taxes likely to plummet this year, both programs will draw even more on their trust funds, placing both Social Security and Medicare in a precarious financial position.
What Do the Trustees Reports Say?
The Social Security Trustees Report doesn’t tell us anything we didn’t already know. Social Security’s Old-Age and Survivors Insurance Trust Fund itself (OASI) will run out of money in 2034, after which time Social Security payroll taxes are only going to cover 76% of scheduled benefits. If the OASI fund were to be combined with the Disability Insurance Trust Fund (DI), the combined trust funds will run out of money in 2035, with only 79% of scheduled benefits able to be paid after that time.
The Medicare Trustees Report is again largely the same as last year’s. Medicare is expected to run out of funds in 2026, with Medicare expenditures already exceeding income from Medicare payroll taxes.
The problem with both reports is that they don’t take account of the deteriorating fiscal position of each program now that over 20% of the workforce is out of work. Most of those people out of work are the core of the workforce that contributes to Social Security and Medicare payroll taxes. And any of those workers who are out of work and old enough may very well start to take Social Security payments in order to make up for lost wages, further harming Social Security’s financial position.
Given the fact that economic lockdowns may remain in place for weeks or even months to come, the fact that any recovery will likely be slow rather than V-shaped, and the fact that the economy was on the verge of a major recession even without the lockdowns, the future for Social Security and Medicare is ominous.
It’s not inconceivable that Medicare could end up running out of money by 2025 or even 2024. And Social Security could run out of money this decade, with the trust fund being depleted by 2028 or even earlier. We have no way of really knowing, since everything is based on how long the lockdowns last, how long the economy takes to recover, and how bad the coming recession or depression ends up being.
How to Protect Yourself?
One thing is certain, however. Neither retirees nor the federal government are well served by reports that overstate the health of Social Security. Those who hope to retire within the next decade will very likely face a situation in which they fail to receive the full amount of benefits they otherwise would have expected to. If they planned on depending on Social Security for any amount of their retirement, they might find themselves out of luck once they retire.
The dire situation of both Medicare and Social Security makes it all the more important for those nearing retirement to accept the fact that they will be responsible for their own well-being in retirement. That means that they will have to build up their nest eggs as much as they can before retirement, and ensure that their retirement assets continue to work for them through retirement.
With stock markets poised for a dismal 2020, bond markets set to be thrown into turmoil through corporate debt downgrades, and trillions of dollars of monetary stimulus devaluing cash and savings accounts, investors are faced with a market landscape that is ever worsening. Just like in the aftermath of the financial crisis, investors are wondering how to protect their money and how to continue investing and making gains in a world full of headwinds.
Thankfully, the 2008 financial crisis and its aftermath provide them a blueprint. Gold and silver were the stars of the financial crisis, tripling and quadrupling in price respectively in the aftermath of the crisis. In fact, gold’s gains were so great that the portfolios of investors who took refuge in gold in some cases still are larger than investors who stuck 100% to stocks.
Gold has shown every indication this year that it will continue its role as an investment hedge and protector of assets, with investors of all stripes clamoring for the yellow metal. If you’re looking for an asset to safeguard your wealth, particularly if you realize that the promises of Social Security will be less than fulfilling, you owe it to yourself to look into investing in gold today.
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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