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Social Security Retirement is a Sucker’s Bet

Throw the liberal versus conservative political argument out the window. The real crux of the issue is that present day workers choosing to peg the financial fortunes of their future retirement on Social Security might be the biggest suckers ever – sorry to phrase it so bluntly. The numbers simply don’t add up. This is a government program destined to either collapse entirely or reduce to payouts to such a pittance that you very well might find yourself eating dog food and choosing between medicine or paying the electric bill.

Based on data from the Social Security Administration itself, the following is true:

1. The program will begin paying out more than it takes in as revenue in 2017.
2. The “trust fund” will be exhausted by 2041.
3. $4.7 trillion more in additional revenue funds to pay benefits will be required over the next 75 years.

All this might be easier to stomach if American workers could guarantee themselves some basic level of income from the program they have been paying into their entire working lives. Actually, to be fair, there is a certain baseline level of Social Security income in place, but it is woefully inadequate to meet even the basic needs of a family. We turn again to Social Security data. The most recent numbers show that the average retiree’s family income from the program is $1,097.40 monthly, which translates to $13,175.40 annually.

Do you want to spend your Golden Years living under the financial strain of trying to stretch those dollars far enough to survive? For a dose of realism, that is less than a full-time, minimum wage job in some states. At best, we should consider Social Security no more than an emergency program to prevent homelessness and starvation, though even the ability to accomplish that modest goal in the future appears to be at risk.

The bottom line is this. If your retirement plans lean heavily on taxpayer funded government programs like Social Security, please stop thinking that way immediately. You deserve a better future than that. If you happen to be the minority of worker who wants to work his fingers to the bone with the daily grind right up until you keel over dead at the keyboard in your office cubicle, fine, enjoy it. Some of us, though, are dreaming of rum runners, tropical beaches, ski slopes, uncomplimentary but exceedingly comfortable Bermuda shorts and knee-high black socks, and creating a series of gargantuan divots on a Florida or Arizona golf course.

Change Your Thinking
We don’t plan to make you an investment expert within the space of a single article, but would like to take the opportunity to perhaps change your thinking slightly. You need to understand the terrible toll inflation in the modern American economy takes on your purchasing power. It’s not so much that the $13,175.40 Social Security will pay you annually is so pitiful, which it is, but rather than the amount of goods and services you can purchase with that level of income drops precipitously every year. How much? The government admits to about 4% but our estimates place the number closer to 10%.

Folks, this is a pretty big deal. The amount of stuff you can buy with your money, which is WAY more important than how much you have, gets dinged by about 10% each and every year. In recent years, more times than not the federal government has suspended the Cost Of Living Adjustment (COLA), a practice that freezes Social Security payments at current levels, which means there is no offset of the entire effect of inflation on your personal finances.

Consider this example. 10% of $13,175.40 is about $1,317. By the end of your first rosy year on Social Security retirement payments, inflation has eroded your purchasing power down to the level of $11,858. Let’s say you don’t get a COLA the following year either. That means you need to lop another 10% off the new amount, which takes your purchasing power down below $11,000. Is this the way you want to spend your retirement? We can absolutely promise this is your future if you decide to rely on Social Security payments, assuming nothing drastic happens on the political or economic front.

It would have to be titanic though. Nothing short of a fiscal budget slashing madman of a president or a return to the gold standard to rein in inflation would do the trick. Given the recent history of our responsibility-dodging politicians, counting on a return to national financial sanity is that sucker bet we were talking about in the headline.

The Heroic Investing Team

 

 

 

 

 

Flickr / Melissa Gray

 

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