More Americans Dreading Than Dreaming of Retirement

It should come as no surprise that Social Security is in dire financial shape. The scheme was flawed from its inception, working as a transfer payment system that took money from workers to provide payments to the first recipients of Social Security benefits. The first recipient of a Social Security check was Ida Fuller, who paid $24.75 in Social Security taxes and received $22,888.92 in benefits by the time she died at age 100. The system hasn’t gotten much better since, and the Social Security trust fund is expected to go bankrupt by 2034. That has left a number of Americans who expected Social Security payments dreading retirement rather than looking forward to it.

Social Security Fundamentally Unsound

When Social Security was first established, it was funded through payroll taxes placed on both workers and employers. Both employers and workers paid 1% of the first $3,000 of wages. While that wage figure has grown due to inflation, so has the percentage paid by workers and employers. It now stands at 6.2% for both workers and employers or 12.4% overall. That percentage has had to increase because Social Security is actuarially unsound.

Because Social Security relied on transfer payments, current workers paying into the system and retirees receiving benefits, and because the first recipients received many more benefits than they paid in, Social Security has always operated as a type of Ponzi scheme, relying on more workers entering the system to pay the benefits of retirees. The amount of money that needed to be paid into Social Security was always underestimated, resulting in the rise in contribution rates from 1% to 6.2%. Even still, an increasing number of retirees living longer lives led to increased Social Security payments, with fewer and fewer workers per retiree to provide those benefits.

Now that the baby boomer generation is beginning to retire in larger numbers, that problem will be exacerbated. Unless major changes are made to the system, the Social Security trust fund will be exhausted by 2034. At that point, payments into Social Security will only suffice to cover about three-quarters of projected benefit payments.

Likelihood of Future Social Security Payments in Doubt

Of course, Social Security projections have a long history of being rosier than reality. When the last major changes were made to Social Security in 1983, it was projected that the trust fund would last until 2057. In 2010 the trust fund was projected to last until 2037. Now it’s projected that the trust fund will only last until 2034. And in another few year, it would not be at all surprising to see that projection revised even further.

That’s why it is so important for workers to save and invest for their retirement. In all likelihood, Social Security won’t be around to provide for you in your retirement, and what little it might provide won’t be nearly enough to survive on. It will be important to take advantage of every opportunity for saving that might present itself, be it employer-sponsored retirement plans or your own private retirement plan.

Every potential retiree should understand the importance of gold in a well-balanced portfolio. Gold protects wealth better than any other investment, as it protects against inflation and performs better than other assets during times of financial crisis. Keeping a solid percentage of your portfolio in gold can help you make sure that your golden years are something to look forward to, not something to dread.