The American dream of retirement is one that millions of Americans hold. For decades, most people assumed that they would find a well-paying job, work at it for decades, and retire with a comfortable pension. But that type of work has become far less common, with many more workers now finding that they have to be dependent on themselves to fund their retirement dreams. Even those who are promised pensions increasingly find that the promises they thought were ironclad are now anything but.
Fewer Americans Have Pensions
In 1960, about half of the private sector workforce had a pension. With an economy booming in the post-World War II era, it was assumed that the era of high growth would last forever. But after the stagflation of the 1970s and the high interest rates of the early 1980s, more and more employers began to drop their pension plans and shift the responsibility for retirement saving onto their employees. Thus began the age of IRAs and, later, 401(k) plans.
Today only about 15 percent of the private sector workforce has a pension plan, many of them legacies from bygone days. You’re more likely to find pensions among government workers, mostly schoolteachers and state-level employees. Even the federal government phased out the most generous portions of its pension system when it switched from CSRS to FERS in 1987.
Pensions Are Just a Promise
At the end of the day pensions are just a promise to pay. If the money isn’t there to fulfill those promises, then retirees are out of luck. And with pension plans assuming long-term growth of 8% or more, and stock markets only having produced 4-5% growth so far this century, more and more pension plans are finding themselves short on money.
Many pension plans are trying to convince their retirees to take lump sum payments or annuities rather than having to pay them income for the rest of their lives. In the worst case scenario, the plans default, leaving retirees dependent on the federal government’s Pension Benefit Guaranty Corporation (PBGC). Last year PBGC paid out $5.6 billion to 868,000 retirees who belonged to failed pension plans. The likelihood that more and more retirees will need to be paid by PBGC will likely only increase in future years as more and more pension plans become underfunded.
Social Security Isn’t a Given
Some retirees may believe that they can count on Social Security to cover the shortfall, but even that isn’t guaranteed. Remember that Social Security isn’t a retirement plan, it’s a direct transfer welfare system. The taxes paid by current workers are transferred to pay the benefits received by current Social Security recipients.
For years the amount of Social Security taxes received was higher than the amount of benefits paid, and that excess money was placed in a “trust fund.” Of course, that money didn’t just sit there. It was swept up by the federal government to pay for its extravagant spending, with the money replaced with non-marketable government securities. And now with Social Security benefits exceeding the amount of Social Security taxes paid, that trust fund is being rapidly depleted.
The most recent estimate is that the trust fund will be completely depleted by 2034. When that occurs, Social Security taxes will only bring in enough money to pay less than 80% of promised Social Security benefits. So don’t be surprised if 15 years from now you’ll receive a Social Security check that is 20-25% less than you expected. If you’re planning on relying on Social Security to any extent, you’ll need to change your plans to make sure that you aren’t going to suffer from an eventual shortfall of funds.
Prepare to Be on Your Own
All of that means that now, more than ever, workers need to save for themselves if they’re going to be able to afford to retire. Whether that’s taking part in an employer-sponsored 401(k) plan, opening up an IRA account, or investing through a brokerage account, it’s up to individuals now to make sure they save enough money to ensure a comfortable retirement.
But the old standby of investing in the stock market isn’t the sure bet that it used to be. The bull market of the 1980s and 1990s got investors used to double digit returns year after year. But those types of long-term returns disappeared a long time ago. And while the stock market has had a tremendous run the past two years, the recent uneasiness has many investors on edge.
With interest rates pushing ever higher and stocks looking to drop, mainstream investment assets don’t have a very rosy outlook. Investors need to start looking towards alternative assets such as gold if they want to maintain their retirement portfolios. Gold has had nearly double the growth rate of stocks this century, 9.6% annualized returns versus 4.8% for the Dow Jones and 4.1% for the S&P 500. And since gold performs well when stocks and bonds don’t, it’s the perfect asset to invest in when the outlook for financial markets is grim.
Even better, you can invest in gold through a gold IRA, offering the same tax benefits as a traditional IRA and allowing you to roll over existing retirement assets tax-free. So if you’re looking to protect your existing retirement portfolio, or looking for a safe haven asset to invest in over the coming years, you owe it to yourself to think about investing in gold.
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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