Bob O'Brien
Head Instructor
bobrien@mywealth.com
Until the recent economic crisis, Social Security enjoyed a surplus and did not project deficits for 10 years. The reduction in benefits was expected in 2038 after all of the Social Security Trust was depleted. By government standards, this was a pretty healthy program. 30 years to keep sweeping something under the rug!
*****Question of the Week! *****
(Don’t miss it….Chance to Win a Free Investing Course by Emailing Me Your Answer. 5 Names will be Randomly Picked and named as winners. So here's your question: The Social Security system is in very bad shape and there will have to be major changes made to this system in the near future. What changes do you think should be and will be made to Social Security? A) No change B) Privatization C) Semi-Privatization D) Eliminate Social Security E) Complete Socialism
The economic crisis has made the Social Security system even worse. With unemployment on the rise and fewer people to tax on the payrolls, the Social Security system will start having deficits now a opposed to 10 years from now as anticipated from earlier estimates.
Last year the Congressional Budget Office predicted that there would an $80 billion surplus that would continue to rise for 10 years. The revised numbers after the crisis are $16 billion for this year and $3 billion for the following year. So a major problem has gone from bad to much worse!
There is a the Social Security Trust Fund, which is about as much of a “trust” as investing money with Bernard Madoff. The Trust fund is more of an accounting promise, which was created due to a larger workforce population, and smaller retiree population. These surpluses have been lent to the Treasury in order to finance other government spending.
So here is where we are: You pay a payroll tax in order to provide retirement benefits to current retirees, with a promise that you will receive benefits when retired, the government then invests any surpluses into Treasuries, in which the Fed prints money to buy. Great System! It should be no surprise as to why the government does not trust people to manage their own money, they have not figured out how to manage it yet!
Which is more irresponsible? Continuing to just print money in order to finance Social Security? or taking (creating) any surpluses and investing it in the stock market?
The government has already become the world’s largest Hedge Fund and has taken major positions in the banks and automotive industry. Without the creativity of the private sector which is financed through the stock market all of these government revenues will become less and less.
Another major problem is going to be inflation, with heavy inflation on the horizon, and more people joining the Social Security payroll. Social Security payouts will increase dramatically. Social Security increases it’s payment to recipients every year based on the CPI (Consumer Price Index) and heavy inflation, means a higher CPI which will be a bigger drain on the Social Security System.
Investing a portion of this money in stocks, would just be a prudent hedge against inflation.
They could increase the payroll tax, but public outrage will be unmatched for increasing the contribution to a system that is doomed for failure. The people that will be hit the hardest with increases will be the people that are projected to receive nothing. The outrage will make the April 15th Tax Tea Party’s seem like holiday parade. You can’t keep increasing the taxes for a system that is doomed for failure.
I am not certain, I am in favor of a completely privatized system, but investing a portion (25% -50%) of these mysterious surpluses in stocks and then re-balancing is just prudent investing. The system would have less risk then it currently bears.
Don’t trust any pension system whether it be your employer and of course Social Security. Take your retirement into you own hands, and take our courses where we can help you do that.
Sincerely,
Bob O’Brien
Sr. Instructor
